QUIZ NO.

15
Contracts – General Provisions [Art. 1305-1317]
April 10, 2018

I
Titles were issued to several persons over a real property. Ten years later, Congress passed a law revoking
the titles and declaring the property public property once again. The purpose is to develop the property as a
housing project to be distributed to qualified citizens. The title holders objected on the ground that they have
entered into a contract with the State and that the law is violative of the freedom of contract. Is their contention
valid? Why? (10%)

Answer: Albano, p. 460-461; Kabiling vs. NHA, G.R. No. 57424, Dec. 18, 1987

No, because the freedom of contract must yield to the police power of the State to promote the health and
general welfare. A contract affecting general welfare is one that has a congenital defect in that the State
reserves the right to violate it.

II
X and Y entered into a contract whereby Y’s services were engaged for the purpose of constructing a building
on the lot belonging to X. Z, a friend of Y, went to see X and told X that Y is well-known for his failure to finish
his contracts within the period agreed upon, prompting X to cancel his contract with Y and awarded the same
to Z. Can Z be held liable for damages? Why? (10%)

Answer: Albano, p. 470; Gilchrist vs. Cuddy, 29 Phil. 542

Yes, any third person who induces another to violate his contract shall be liable for damages to the other. In
the case of Gilchrist vs. Cuddy, 29 Phil. 542, the SC said that this is regardless of the presence or absence of
bad faith of the third person. (See Art. 1314, NCC).

III
The parties entered into a lease contract over a parcel of land granting unto the lessee the exclusive option to
renew the contract subject to the condition that it should comply with a 60-day notice of the intention to
exercise the option to renew the contract which the lessee did. When the lessor refused to renew the contract,
a complaint to compel him to renew was filed. The lessor argued that the renewal of the contract cannot be
made to depend upon the sole will of the lessee; otherwise, the same would be void for being a potestative
condition. Is the agreement granting exclusive option to renew the contract unto the lessee void? Explain.
(10%)

Answer: Albano, p. 464; Allied Banking vs. Court of Appeals, 348 Phil. 382 [1998]; MIAA vs. Ding Velayo
Sports Center, Inc., G.R. No. 161718, December 14, 2011

No, because of the principle of mutuality of contracts. In Allied Banking vs. Court of Appeals, 348 Phil. 382
[1998], it was ruled that Art. 1308 of the Civil Code expresses what is known in law as the principle of mutuality
of contracts. It provides that “the contract must bind both the contracting parties; its validity or compliance
cannot be left to the will of one of them.” This binding effect of a contract on both parties is based on the
principle that the obligations arising from contracts have the force of law between the contracting parties, and
there must be mutuality between them based essentially on their equality under which it is repugnant to have
one party bound by the contract while leaving the other free therefrom Allied Banking vs. Court of Appeals, 348
Phil. 382 [1998]. The ultimate purpose is to render void a contract containing a condition which makes its
fulfillment dependent solely upon the uncontrolled will of one of the contracting parties. (MIAA vs. Ding Velayo
Sports Center, Inc., G.R. No. 161718, December 14, 2011).

The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render
it void for lack of mutuality. After all, the lessor is free to give or not to give the option to the lessee. And while
the lessee has a right to elect whether to continue with the lease or not, once he exercises his option to
continue and the lessor accepts, both parties are thereafter bound by the new lease agreement. Their rights
and obligations become mutually fixed, and the lessee is entitled to retain possession of the property for the
duration of the new lease, and the lessor may hold him liable for the rent therefor. The lessee cannot thereafter
escape liability even if he should subsequently decide to abandon the premises. Mutuality obtains in such a
contract and equality exists between the lessor and the lessee since they remain with the same faculties in
respect to fulfillment.

IV
Roman Catholic Archbishop of Manila (RCAM), as owner of a property, leased the property to Limitless
Potentials, Inc. (LPI). Since there was a pending case between RCAM and Advertising Associates, the lease

Page 1 of 28
contract was amended. There was an application for lease over the premises by ASTRO Advertising, Inc.,
hence, it was referred to LPI where a contract of sublease was entered into between the two. Under the
agreement, ASTRO would pay its rental directly to RCAM so it would earn more to which RCAM agreed. The
rentals paid by ASTRO were not credited for LPI. In the meantime, the sublease contract expired but RCAM
did not surrender the premises to LPI, despite demands. Instead, it leased it to MCIC. RCAM likewise informed
LPI that it was remiss in the payment of its rents and considered the contract rescinded. LPI contended that the
rentals of ASTRO should have been credited in its favor. An action for unlawful detainer was filed but the MTC,
RTC, CA ruled that RCAM had no cause of action for ejectment. It was ruled that the rentals of ASTRO should
have been credited in favor of LPI. Is the ruling correct? Why? (10%)

Answer: Albano, 465-466; Florentino vs. Encarnacion, Sr., 79 SCRA 193 [1977]; Limitless Potentials, Inc. vs.
The Hon. Renato C. Quilala, et. al., G.R. No. 157391, July 15, 2005

Yes, as there was a stipulation pour autri in favor of RCAM which accepted the same. The acceptance may be
in any form. The law does not require that it be in writing. In Florentino vs. Encarnacion, Sr., 79 SCRA 193
[1977], it was ruled that the acceptance does not have to be in any particular form, even when the stipulation is
for the third person an act of libierality or generosity on the promisor or promise. It need not be made expressly
or formally. Notification of an acceptance, other than such as is involved in the making of demand, is
unnecessary.

In this case, RCAM accepted the rentals from ASTRO, thus, there was acceptance of the stipulation in its
favor. (Limitless Potentials, Inc. vs. The Hon. Renato C. Quilala, et. al., G.R. No. 157391, July 15, 2005).

V
A notary public ratified a document entitled “legal separation,’’ executed by a husband and wife, wherein they
agreed that they separated mutually and voluntarily, that they renounced their rights and obligations, and that
they authorized each other to remarry, renouncing any action to which they might be entitled and each
promising not to be a witness against the other. Are these covenants valid?

Answer: De Leon, pp. 453-454; Biton vs. Momongon, 62 Phil. 7 [1935]

No. They “are contrary to law, morals, and good customs and tend to subvert the vital foundation of the
legitimate family.” The notary public is severely censured. (Biton vs. Momongon, 62 Phil. 7 [1935], cited in
Selenova vs. Mendoza, infra.)

VI
X is prohibited from engaging in any business or occupation whatever in the Philippines for a period of five (5)
years after the termination of his contract of employment without special written permission from Y. Is this
stipulation against public policy?
Answer: De Leon, p. 458; Ferrazzini vs. Gsell, 34 Phil. 697 [1915]

Yes. It is clearly one in undue or unreasonable restraint of trade and, therefore, against public policy. While it is
limited as to time and place, it is not as to trade. It would force X to leave the Philippines in order to obtain a
livelihood in case Y declined to give the written permission to work elsewhere in the country. (Ferrazzini vs.
Gsell, 34 Phil. 697 [1915]

VII
X, a judge of the Court of First Instance12 and Y (a private corporation) entered into a contract of personal and
professional services under the terms of which X is “to head Y’s legal department with the condition that he
would render such services only after office hours. Is the contract valid?

Answer: De Leon, pp. 460-461; Omico Mining and Industrial Corp. vs. Vallejos, 63 SCRA 285 [1975]

The contract is void because it is against the law (Sec. 35, Rule 138, Rules of Court.) and public policy. The
prohibition is based on sound reasons of public policy, for the rights, duties, privileges, and functions of the
office of an attorney-at-law are inherently incompatible with the high official functions, duties, powers,
discretions, and privileges of a judge of the Court of First Instance. This inhibitory rule makes it obligatory upon
the judicial officers concerned to give their full time and attention to their judicial duties, prevent them from
extending special favor to their own private interests and assure the public of their impartiality in the
performance of their functions. These objectives are dictated by a sense of moral decency and the desire to
promote the public interest. (Omico Mining and Industrial Corp. vs. Vallejos, 63 SCRA 285 [1975]).

VIII
In a contract to sell subdivision lots, it is stipulated that in case of default of the vendee in the payment of the
monthly installments, he should have a month of grace to make the late payment, and an additional period of

Page 2 of 28
90 days to begin from the expiration of the month of grace, to pay all the amounts due, otherwise, the vendor
would have the right to declare the contract cancelled. Is the stipulation violative of Article 1308?

Answer: De Leon, p. 469; Garcia vs. Rita Legarda, Inc., 21 SCRA 555 [1967].

No. The ultimate purpose of Article 1308 is to render void a contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties. The stipulation
merely gives the vendor the right to declare the contract cancelled and of no effect. This power could not be
arbitrarily exercised without the vendee committing the breach of the contract for non-payment of the
installments agreed upon. All that the vendee has to do to prevent the vendor from exercising the power to
cancel is for him to comply with his part of the contract. (Garcia vs. Rita Legarda, Inc., 21 SCRA 555 [1967].)

IX
X (insurer) issued to Y (Taxicab Company) a common carrier accident policy. The heirs of T, a driver of one of
the vehicles covered by the policy, who was killed brought action against X to collect the proceeds of said
policy in view of the failure of X and Y to agree with respect to the amount to be paid to said heirs. X claims
that the heirs had no cause of action as they had no contractual relation with T. Does the policy in question
belong to contracts pour autrui?

Answer: De Leon, 480; Coquia vs. Fieldmen’s Ins. Co., 26 SCRA 178 [1968]

Yes. The policy provides, inter alia, that X “will indemnify any authorized driver who is driving the motor
vehicle” of the insured and, in the event of death of said driver, X shall, likewise, “indemnify his personal
representatives.’’ Thus, the policy is typical of contracts pour autrui, this character being made more manifest
by the fact that the deceased driver, paid 50% of the premiums, which were deducted from his weekly
commissions. (Coquia vs. Fieldmen’s Ins. Co., 26 SCRA 178 [1968].)

X
R, lessor sent a letter to E, lessee, informing the latter of a 50% increase in rent, enclosing in the letter new
lease contracts for signing. R warned that failure of E to accomplish the contracts shall be deemed as lack of
interest on the lessee’s part and agreement to the termination of the lease. E did not answer the letter, but the
lease contracts were not rescinded. T, petitioner, requested formal contracts of lease with R for his own textile
business, TM. The lease contracts in favor of TM were executed. In the suit for injunction, E pressed for the
nullifi cation of the lease contracts between R and T. E also claimed damages. Is T guilty of tortious
interference with contract and liable for attorney’s fees?

Answer: De Leon, pp. 490-492; So Ping Bun vs. Court of Appeals, 314 SCRA 751 [1999]

Yes. “The foregoing issues involve, essentially, the correct interpretation of the applicable law on tortuous
conduct, particularly unlawful interference with contract. We have to begin, obviously, with certain fundamental
principles on torts and damages.’’ (1) Liability for a non-trespassory invasion of another’s property. — “Damage
is the loss, hurt, or harm which results from injury, and damages are the recompense or compensation
awarded for the damage suffered. One becomes liable in an action for damages for a nontrespassory invasion
of another’s interest in the private use and enjoyment of asset if: (a) the other has property rights and privileges
with respect to the use or enjoyment interfered with, (b) the invasion is substantial, (c) the defendant’s conduct
is a legal cause of the invasion, and (d) the invasion is either intentional and unreasonable or unintentional and
actionable under general negligence rules.’’ (2) Elements of tort interference. — “The elements of tort
interference are: (1) existence of a valid contract; (2) knowledge on the part of the third person of the existence
of contract; and (3) interference of the third person is without legal justifi cation or excuse.’’ (3) Elements are
present. — “A duty which the law of torts is concerned with is respect for the property of others, and a cause of
action ex delicto may be predicated upon an unlawful interference by one person of the enjoyment by the other
of his private property. This may pertain to a situation where a third person induces a party to renege on or
violate his undertaking under a contract. In the case before us, petitioner TM asked R to execute lease
contracts in its favor, and as a result, petitioner deprived E corporation of the latter’s property right. Clearly, and
as correctly viewed by the appellate court, the three elements of tort interference above-mentioned are present
in the instant case.’’ (4) Justification for interference. — “Authorities debate on whether interference may be
justified where the defendant acts for the sole purpose of furthering his own financial or economic interest. One
view is that, as a general rule, justification for interfering with the business relations of another exists where the
Page 3 of 28
actor’s motive is to benefit himself. Such justification does not exist where his sole motive is to cause harm to
the other. Added to this, some authorities believe that it is not necessary that the interferer’s interest outweigh
that of the party whose rights are invaded, and that an individual acts under an economic interest that is
substantial, not merely de minimis, such that wrongful and malicious motives are negatived, for he acts in self-
protection. Moreover, justification for protecting one’s financial position should not be made to depend on a
comparison of his economic interest in the subject matter with that of others. It is sufficient if the impetus of his
conduct lies in a proper business interest rather than in wrongful motives. As early as Gilchrist vs. Cuddy (29
Phil. 542, 549 [1915].), we held that where there was no malice in the interference of a contract, and the
impulse behind one’s conduct lies in a proper business interest rather than in wrongful motives, a party cannot
be a malicious interferer. Where the alleged interferer is financially interested, and such interest motivates his
conduct, it cannot be said that he is an officious or malicious intermeddler.’’ (5) Extent for damages. — “In the
instant case, it is clear that petitioner T prevailed upon R, to lease the warehouse to his enterprise at the
expense of E. Though petitioner took interest in the property of respondent corporation and benefited from it,
nothing on record imputes deliberate wrongful motives or malice on him. Article 1314 of the Civil Code
categorically provides also that, ‘Any third person who induces another to violate his contract shall be liable for
damages to the other contracting party.’ Petitioner argues that damage is an essential element of tort
interference, and since the trial court and the appellate court ruled that private respondents were not entitled to
actual,

QUIZ NO. 16
(Contracts – Essential Requisites [Art. 1318]; Consent [Art. 1319-1346])
April 16, 2018

I
A offered to sell his automobile to B for P50,000. After inspecting the automobile, B offered to buy it for
P50,000. This offer was accepted by A. The next day, A offered to deliver the automobile, but B, being short of
funds, secured a postponement of the delivery, promising to pay A the price “upon arrival in this port of the
steamer, Helena.” The steamer, however, never arrived because it was wrecked somewhere off the coast of
Samar.

a) Is there a perfected contract in this case? Why? (4%)

b) Is the promise to pay made by B conditional or with a term? Why? (3%)
c) Can A compel B to pay the purchase price and to accept the automobile? Why? (3%)

Ans. (a) Yes, there is a perfected contract because there is already a concurrence between the offer and the
acceptance with respect to the object and the cause which shall constitute the contract. Such concurrence is
manifested by the acceptance made by A of the offer made by B. (Art. 1319, par. 1)

(b) I submit that the promise to pay made by B is not a conditional, but with a term. The promise is to pay the
P50,000 upon arrival in this port of the steamer, Helena, not if the steamer Helena shall arrive in this port.
Hence, the promise is with regard to the date of arrival and not with regard to the fact of arrival.

(c) Yes, A can compel B to pay the purchase price and to accept the automobile. He will, however, have to wait
for the date when the steamer, Helena, would arrived were it not for the shipwreck. After all, there is already a
perfected contract.

II
X applied for a life annuity of P6,000 at the local office of the Sun Life Assurance Co. in Manila. He paid the
amount of P6,000 and was issued a provisional receipt. The application was forwarded to the head office of the
Company in Canada. Notice of acceptance, however, was received at the residence of X one day after his
death. Can his legal heirs still recover the P6,000? Reasons. (10%)

Ans. Yes, the legal heirs of X can still recover the P6,000 already paid to the Company. The reason is that
there is still no perfected contract of life annuity. Under the provision of the second paragraph of Art. 1319 of
the Civil Code, it is clear that the contract is perfected only once the offeror has knowledge of the acceptance
made by the offeree. In the instant case, the offeror was already dead when the notice of acceptance was
received. (Enriquez vs. Sun Life Assurance Co., 41 Phil. 269) Besides, under the provision of Art. 1323 of the
Code, there can be no possible contract that can be generated here. An offer, says the law, becomes

Page 4 of 28
ineffective upon the death, civil interdiction, insanity or insolvency of either party before acceptance is
conveyed. The word “conveyed” in this provision denotes that it has already been communicated.

III
On March 5, 1956, A wrote a letter to B offering to him the lease of a building. On March 6, 1956, at 1:00 P.M.,
B sent a letter of acceptance which was received by A at 4:00 P.M. that day. But at 2:00 P.M., A had already
sent B a letter of withdrawal of the offer which was received by B at 5:00 P.M. Was the contract perfected?
Reasons. (10%)

Ans. The contract has not been perfected. The decisive moment to consider in this case is the time when the
offeror, A, had knowledge of the acceptance made by offeree, B. This is so because, according to the law, the
contract is perfected only from the moment that the offeror has knowledge of the acceptance by the offeree
(Art. 1319, par. 2, CC). According to the facts stated in the problem, A received the letter of acceptance at 4:00
P.M. But two hours before that, at 2:00 P.M., he had already sent a letter to B withdrawing the offer.
Consequently, at 4:00 P.M., although there was acceptance, there was no longer any offer. Therefore, the
contract was not perfected because it is evident that there was no concurrence between the offer and the
acceptance. (Laudico vs. Arias, 43 Phil. 270)

IV
A offered to lease a certain building to B. Within the period of the option given to him, B finally accepted the
offer. A few hours after mailing the letter of acceptance, he changes his mind. May he revoked his acceptance
by means of a telegram? (10%)

Ans. According to Tolentino, since there is still no perfected contract, and, as a consequence, the parties are
not yet bound, there is no juridical reason why the offeree cannot revoke his acceptance.

V
“A” agreed to sell to “B” a parcel of land for P5,000. “B” was given up to May 6, 1975 within which is to raise
the necessary funds. It was further agreed that if “B” could not produce the money on or before said date, no
liability would attach to him. Before May 6, 1975, “A” backed out of the agreement. Is “A” obliged to sell the
property to “B”? Explain. (10%)

Ans. Assuming that the offer of “A” to sell the land to “B” is merely a unilateral offer to sell, and that there is still
no bilateral agreement in the sense that “B” had already agreed to buy the land, “A” is not obliged to sell the
property to “B”. In such case, it is clear that the general rule stated in Art. 1324 and the particular rule stated in
Art. 1479, par. 2, of the Civil Code are applicable. As a matter of fact, even if “B” has formally accepted the
option given him by “A”, such acceptance would be of no moment since the option is not supported by any
consideration distinct from the purchase price. “A” can always change his mind at any time. The option does
not bind him for lack of a cause or consideration. It would have been different if “B” had accepted the offer to
sell within the period of the option before said offer was withdrawn by “A”. In such a case, a contract of sale
would have been generated right then and there. As it turned out, “A” withdrew his offer in time. (See Sanchez
vs. Rigos, 45 SCRA 398)

(Note: In Sanchez vs. Rigos, supra, the Supreme Court finally resolved a question which arose out of the use
of the word “accepted” in modifying the phrase “unilateral promise to buy or to sell” in Art. 1479, par. 2 of the
Civil Code. “Accepted” refers to the option, not to the offer to buy or to sell; in other words, it refers to the
acceptance by either prospective vendee or prospective vendor of the option of, let us say, ninety days within
which he shall decide whether or not he shall buy or sell the thing. Thus, if A offers to sell a lot to B for
P200,000, and gives the latter an option of ninety days within which to decide whether or not he shall buy the
property, and the latter accepts the option, two possible situations may arise:

1) In accepting the option, B pays to A an “option money” of, let us say P5,000 which is distinct from the
purchase price. In such case, there is already a perfected preparatory contract of option. A is bound by
his offer. B shall now decide within the period of the option whether or not he shall buy the property. If
he decides to buy, he shall then pay to A the price of P200,000 if he decides otherwise, no contract of
sale will ever be perfected.
2) In accepting the option, B does not pay any “option money” to A. In such case, there is no perfected
preparatory contract of option for lack of consideration. The result is a mere offer to sell, acceptance of
which will be sufficient to generate a perfected contract of sale. But suppose that, meanwhile, A has
changed his mind. The lot is no longer for sale. B, on the other hand, has decided to buy the property.
Page 5 of 28
 What will now happen? Under this situation, the one who is first to notify the other of his decision
emerges the victor. If A is the first to notify B of his change of mind, no contract of sale will ever be
perfected; if B is the first to notify A of his acceptance of the offer, a contract of sale has already been
perfected.)

VI
X, the owner of a house and lot in Quezon City, gave an option to A to purchase said property for P100,000.00
within ninety days from May 1, 1979. A gave X one (P1.00) peso as option money. Before the expiration of the
ninety-day period, A went to X to exercise his option and to pay the purchase price but X refused because
somebody wanted to buy his property for P150,000.00 and because there was no sufficient consideration for
the option. A sued X to compel him to accept payment and execute a deed of sale in his favor. Decide the
case. (10%)

Ans. X should be compelled to accept the purchase price of P100,000.00 and to execute a deed of sale of the
subject property in favor of A. The reason is that there is already a perfected contract of sale. Undoubtedly, in
the instant case, there is a unilateral offer of X to sell the subject property to A. For that purpose, the latter was
given an option of ninety days from May 1, 1979 within which to exercise the option. The consideration for the
option is P1.00. Since there is a consideration for the option, X is now bound by his promise to sell the property
to A so long as the latter will exercise the option within the agreed period of ninety days. A exercised the
option. Therefore, there is already a perfected contract of sale. As a matter of fact, even if the option is without
any consideration, the end result would still be the same. Since there was an acceptance by the offeree of the
offer before the offeror could revoke or withdraw his offer, there is already a perfected contract of sale.
(Sanchez vs. Rigos)

The above conclusion is clearly supported by Art. 1324 of the Civil Code, which declares that “when the offeror
(X) has allowed the offeree (A) a certain period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as
something paid or promised.” It is also supported by the second paragraph of Art. 1479 of the Civil Code.

True, X shall suffer lesion or damage if he is compelled to execute the contract of sale in favor of A. If what he
says about another buyer is the truth he will be losing something like P50,000.00. Thus, also, the consideration
for the option is grossly inadequate. However, the law is clear and categorical. According to Art. 1355 of the
Civil Code, “except in case specified by law, lesion or inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake, or undue influence.” Under the facts stated in the instant case, there is
no basis for invalidating the preparatory contract of option on the ground of fraud, mistake or undue influence.

VII
“K” and Co. published in the newspaper an “Invitation to Bid” inviting proposals to supply labor and materials
for a construction project described in the invitation. “L”, “M”, and “N” submitted bids. When the bids were
opened, it appeared that “L” submitted the lowest bid. However, “K” and Co. awarded the contract to “N”,
highest bidder, on the ground that he was the most experienced and responsible bidder. “L” brought an action
against “K” and Co. to compel the award of the contract to him and to recover damages. Is “L”s position
meritorious? (10%)

Ans. L’s position is not meritorious.

According to the Civil Code, advertisements for bidders are simply invitations to make proposals, and the
advertiser is not bound to accept the highest or lowest bidder unless the contrary appears. It is clear that the
general rule applies in the instant case. In its advertisement “K” and Co. did not state that it will award the
contract to the lowest bidder. Therefore, in awarding the contract to “N”, the defendant company acted in
accordance with its rights.

(Note: The above answer is based on Art. 1326 of the Civil Code.)

VIII
C, an old and ignorant woman, was helped by V in obtaining a loan of P3,000.00 from X Rural Bank secured
by a mortgage on her house and lot. On the day she signed the promissory note and the mortgage covering
the loan, she also signed several documents. One of these documents signed by her was a promissory note of
V for a loan of P3,000.00 also secured by a mortgage on her house and lot. Several years later, she received
advice from the sheriff that her property shall be sold at public auction to satisfy the two obligations.

Page 6 of 28
Immediately, she filed suit for annulment of her participation as co-maker in the obligation contracted by V as
well as of the mortgage in relation to said obligation of V on the ground of fraud and mistake. Upon filing of the
complaint, she deposited P3,000.00 in court as payment of her personal obligation including interests.

a) Can C be held liable for the obligation of V? Why? (5%)

b) Was there a valid and effective consignation considering that there was no previous tender of payment
made by C to the Bank? Why? (5%)

Ans. (a) C cannot be held liable for the obligation of V. It is crystal clear that C’s participation in V’s obligation
both as co-maker and as mortgagor is voidable not on the ground of fraud because the Bank was not a
participant in the fraud committed by V, but on the ground of mistake. There was substantial mistake on the
part of both C and the Bank mutually committed by then as a consequence of the fraud employed by V. (See
Rural Bank of Caloocan City vs. CA, 104 SCRA 151)

(Note: In reality, the above answer of the Supreme Court is based upon the explicit provisions of Art. 1342 of
the New Civil Code)

(b) Despite the fact that there was no previous tender of payment made directly to the Bank,
nevertheless, the consignation was valid and effective. The deposit was attached to the record of the
case and the Bank has not made any claim thereto. Therefore, C was right in thinking that it was
useless and futile for her to make a previous offer and tender of payment directly to the Bank. Under
the foregoing circumstances, the consignation was valid, if not under the strict provisions of the law,
under the more liberal considerations of equity. (Ibid.)

IX
A and B are parties in a contract of lease which is to expire on December 31, 1993. Sometime in November
1993, they started negotiating for a new contract. A sent a draft of his proposed contract to B. B also sent a
letter asking A to include three (3) proposed terms and placed therein a cover letter that if A would be
agreeable to the three (3) terms, the contract would be considered signed and perfected. A agreed and later
sent the contract already signed by him to B for his signature. Suppose B would not sign, can you consider the
contract signed and perfected? Why? (10%)

Answer: Albano, p. 475

Yes, because the consent can be derived from the communications between A and B. Consent can be
manifested in any form, like a series of communications (Ramon Magsaysay Award Foundation vs. CA, G.R.
No. 55998, Jan. 17, 1985), or through a marginal note (NGA vs. IAC, G.R. No. 74470, March 8, 1989), or
through the acceptance of a downpayment. (Topacio vs. CA, et. al., G.R. No. 102606, July 3, 1992).

X
Rosario obtained a loan of P100,000.00 from Jennifer and pledged her diamond ring. The contract signed by
the parties stipulated that if Rosario is unable to redeem the ring on due date, she will execute a document in
favor of Jennifer providing that the ring shall automatically be considered full payment of the loan. Is the
contract valid? Explain. (10%)

Answer: Ulep, p. 227-228; Bar Problem (2009)

The contract is valid because Rosario has to execute a document in favor of Jennifer to transfer the
ownership of the pledged ring to the latter. The contract does not amount to a pactum commissorium
because it does not provide for the automatic appropriation by the pledgee of the thing pledged in
case of default by the pledgor.

IRAC:
Yes, the contract is valid.

Article 1306 provides that, the contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.

In this case, the stipulation is valid for it does not amount to a pactum commissorium because it does
not provide for the automatic appropriation by the pledgee of the thing pledged in case of default by
the pledgor. Thus, the contract is valid and enforceable against the parties.

Page 7 of 28
 QUIZ NO. 17
(Contracts – Object [Art. 1347-1349]; Cause [Art. 1350-1355]); Form [Art. 1356-1358]; Reformation [Art. 1359-
1369]; and Interpretation [Art. 1370-1379])
April 17, 2018

I
A contract of sale was entered into by and between A and B whereby A sold and delivered a parcel of land to
B. The contract, however, did not state the consideration, hence, after the death of A, his heirs filed an action
for reconveyance contending that the contract is void due to lack of consideration. Will the action prosper?
Why?

Answer: Albano, p. 480

No, because under the law, although the cause is not stated in the contract, it is presumed that it exists and is
lawful, unless the debtor proves the contrary. (Art. 1354, NCC).

II
In a contract of sale of a car between A and B, they agreed that the consideration is P1.00 and other
considerations. Is the contract valid? Why?

Yes, because P1.00 and other considerations is a valid and sufficient consideration. The rule is that the gross
inadequacy of the price does not invalidate a contract of sale (Art. 1470, NCC), especially so with the
presumption of consideration in the law. (See Ong vs. Ong, G.R. No. 67888, October 8, 1985).

III
W, wife of H and daughter of F, while employed in a pawnshop owned by P, embezzled P2,000 belonging to
said pawnshop. In order to prevent her criminal prosecution for estafa, H and F signed a document obligating
themselves jointly and severally to pay P the amount embezzled including interest. Because of their failure to
comply with their promise, the latter brought an action against them for collection. Will the action proper?
Reasons.

Answer. The action will not prosper. The consideration for the agreement is clearly illicit, which fact is apparent
on the face of the contract, and the case is accordingly governed by Art. 1352 of the Civil Code.

There has been no period since contract law reached the state of consciousness, when the maxim ex turpi
causa non oritur actio was not recognized. A contract based upon an unlawful object is and always has been
void ab initio by the common law, by the civil law, moral law, and all laws whatsoever. It is immaterial whether
the illegal character is revealed in the matter of the consideration, in the promise as expressed in the
agreement or in the purpose which the agreement, though legal in expression, is intended to accomplish. If the
illegality lurks in any element, or even subsists exclusively in the purpose of the parties, it is fatal to the validity
of the contract.

By universal consensus of judicial opinion in all ages, it has been considered contrary to public policy to allow
parties to make an agreement designed to prevent or stifle prosecution for crime. (Velez vs. Ramas, 40 Phil.
787).

IV
A gave to B P2,000 to be used in the purchase of palay, with the obligation to return said amount within ten
(10) days, if not spent for said purpose. B neither bought palay nor returned said amount. As a result, A
accused him of estafa. When the case was about to be heard, X, a common friend, acting upon B’s request
prevailed upon A to move for the dismissal of the case and be contented with a promissory note to be
executed by B. The note was executed, and accordingly, the criminal case was dismissed. B, however, was
unable to comply with his promise despite repeated demands. Subsequently, A brought an action against B for
the recovery of the P2,000. B, however, contends that the promissory note is void because the consideration
thereof is the dismissal of the estafa case which is certainly contrary to public policy. Is this correct?

Answer. This is not correct. It is admitted that B had received P2,000 from A to be used in the purchase of
palay. The cause or consideration, therefore, for the promise was this pre-existing debt of B, not the dismissal
of the estafa case, which merely furnished the occasion for the execution of the promissory note. (Mactal vs.
Melegrito, 111 Phil. 363).

V
X entered into a contract of sale with right to repurchase with Y over a house and lot belonging to him. Can he
sell that right? Why?

Page 8 of 28
Answer: Albano, p. 479

Yes, because that right, even if intangible, is determinate. The object of every contract must be
determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the
existence of the contract, provided it is possible to determine the same without need of a new contract
between the parties. (Art. 1349, NCC)

IRAC:
Yes, X can sell the rights.

Article 1349 provides that, “The object of every contract must be determinate as to its kind. The fact that
the quantity is not determinate shall not be obstacle to the existence of the contract, provided it is
possible to determine the same, without the need of a new contract between the parties.”

In this case, the right, even if intangible, is determinate, hence, it can be sell or object of the contract.

VI
Marlene Dauden, a movie actress, filed a complaint against A Co. seeking to recover the amount of
P14,700.00 representing the balance of her fee as leading actress in two movies produced by A Co. The
company filed a motion to dismiss on the ground that that the claim was not evidenced by any written
document, public or private. It violated Article 1358, NCC. The lower court granted the motion. Was the order
dismissing the complaint proper? Why? (10%)

Answer: Albano, p. 482-483; Dauden-Hernaez vs. De los Angeles, 27 SCRA 1276; Renato Cenido, etc. vs.
Sps. Sta. Ana, G.R. No. 132474, November 19, 1999

No, because contracts are binding between the parties in whatever form they may be, whether oral or written.
(Arts. 1315 and 1356, NCC; Dauden-Hernaez vs. De los Angeles, 27 SCRA 1276; Renato Cenido, etc. vs.
Sps. Sta. Ana, G.R. No. 132474, November 19, 1999).

VII
X and Y entered into a contract of loan. X, the creditor, however, asked Y to sign a document which purported
to be a sale of a parcel of land with the assurance that the same would only be a security for the payment of
the obligation. What is the remedy of Y in case X demands the delivery of the supposed security contending
that X is now the owner of the property? Explain. (10%)

Answer: Albano, 485-486; NIA vs. Gamit, et. al., G.R. No. 85869, Nov. 6, 1992

Y can ask for specific performance. Under the law, when, there have been a meeting of the minds of the
parties to a contract, their true intention is not expressed in the instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true intention may be expressed. (Art. 1359 [par. 1], NCC;
NIA vs. Gamit, et. al., G.R. No. 85869, Nov. 6, 1992).

VIII
The National Housing Authority (NHA) purchased eight (8) parcels of land. However, upon payment, it only
paid the five (5) parcels of land. It did not pay the three parcels of land and unilaterally cancelled the Deeds of
Sale relative thereto considering that the lots turned out to be unsuitable for its housing project. Is the unilateral
cancellation of the deeds of sale of the unpaid three parcels of land by the NHA valid? Why? (10%)

Answer: Sta. Maria, pp. 525-526; Uy vs. CA, G.R. No. 120465, September 9, 1999

Yes. The cancellation, therefore, was not a rescission under Article 1191. Rather, the cancellation was based
on the negation of the cause arising from the realization that the lands, which were the object of the sale, were
not suitable for housing.

Cause is the essential reason which moves the contracting parties to enter into it. In other words, the cause is
the immediate, direct and proximate reason which justifies the creation of an obligation through the will of the
contracting parties. Cause, which is the essential reason for the contract, should be distinguished from motive,
which is the particular reason of a contracting party which does not affect the other party.

NHA was justified in canceling the contract. The realization of the mistake as regards the quality of the land
resulted in the negation of the motive/cause thus rendering the contract inexistent. Article 1318 of the Civil
Code states that:

Art. 1318. There is no contract unless the following requisites concur:

Page 9 of 28
 (1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

IX
The lease contract provided that the “20-year period of lease being extendable for another period of 20 years”
was interpreted by the lower court as giving the lessee an automatic renewal of the lease period. Is the lower
court correct?

Answer: Sta. Maria, p. 555; Santi vs. CA, G.R. No. 93625, November 8, 1993

No. The Supreme Court said:

In a wealth of cases and as provided for in Articles 1370 and 1372 of the Civil Code, 5 we have ruled that when
terms and stipulations embodied in the contract are clear and leave no room for doubt, such should be read in
its literal sense and that there is absolutely no reason to construe the same in another meaning.

To our mind, the stipulation "said period of lease being extendable for another period of twenty (20) years . . ."
is clear that the lessor's intention is not to automatically extend the lease contract but to give her time to
ponder and think whether to extend the lease. If she decides to do so, then a new contract shall be entered
into between the lessor and lessee for a term of another twenty years and at a monthly rental of P220.00. This
must be so, for twenty (20) years is rather a long period of time and the lessor may have other plans for the
property.
If the intention of the parties were to provide for an automatic extension of the lease contract, then they could
have easily provided for a straight forty years contract instead of twenty.

X
On January 5, A sold and delivered his truck together with the corresponding certificate of public convenience
to B for the sum of P1.6 million payable within 60 days. Two weeks after the sale and while the certificate of
public convenience was still in the name of A, the certificate was revoked by the Land Transportation
Commission through no fault of A. Upon the expiration of the 60-day period, A demanded payment of the price
from B. B refused to pay, alleging that the certificate of public convenience which was the main consideration
of the sale no longer existed. Is the contention of B tenable? Why? (10%)

Answer: Paras, p. 665; Juan Serrano vs. Federico Miave, et. al., L-14678, March 31, 1965

No, for the certificate was in existence at the time of the perfection of the contract. Its subsequent revocation is
of no consequence insofar as the validity of the contract is concerned. Besides, B was negligent in not having
caused the immediate transfer of the certificate to his name. After all, it had already been delivered to him.
(See Juan Serrano vs. Federico Miave, et. al., L-14678, March 31, 1965).

QUIZ NO. 18
Rescissible Contracts [Art. 1380-1389] and (Voidable Contracts [Art. 1390-1402]
April 23, 2018

I
X and Y entered into a lease contract over a house and lot of X, the lessor, giving Y, the lessee, the right of
first refusal to purchase the premises in case X decides to sell the property. When X decided to sell, he offered
it to Y for P5M payable within one (1) year. Since Y could not afford, Y communicated the inability to pay,
hence, X offered it to Z for P5M payable in four years. Title was later acquired by Z, thus, he filed an ejectment
suit against Y who discovered the manner of payment. Discuss the remedy/remedies of Y, if any, as against X
and Z. State whether the action will prosper and why. (5%)

Answer: Albano, p. 491, G.R. No. 86150, March 2, 1992

The remedy is to file an action for rescission because the sale was made in fraud of creditors. In Guzman,
Bocaling & Co. vs. Bonnevie, which is similarly situated with the case at bar, it was said that the lessee can be
considered a creditor because of the substantial right he acquired from the contract giving him the right to buy
under equal terms and conditions as offered to others in case he cannot avail of such right. (206 SCRA 668
[1992]).

II
X sold his car to Y for P400,000.00. After Y paid P300,000, X agreed to have the car transferred in the name of
Y provided that Y would pay the balance of P100,000 within ten (10) days from the registration of the same.

Page 10 of 28
After the certificate of registration was issued, Y sold it to Z who registered it under his name. Y failed to pay.
Can X rescind the contract? If not, what is his remedy? (5%)

Answer: Albano, p. 494

X can no longer rescind the contract because Y cannot return the thing to him anymore, Rescission
creates the obligation of mutual restitution of the object and the cause or consideration. (Art. 1385,
NCC). Since Y has already transferred the car to Z, rescission is no longer possible.

X can, however, file an action for specific performance with damages against Y. (Art. 1191, NCC).

IRAC:
X can no longer rescind the contract because Y cannot return the thing to him anymore.

Article 1385 provides that, “Rescission creates the obligation to return the things which were the object
of the contract, together with their fruits, and the price with its interest; consequently, it can be carried
out only when he who demands rescission can return whatever he may be obliged to restore.”

In this case, X can no longer rescind the contract because Y cannot return the thing to him anymore when it
was made to sold to Z. Howver, X can file an action for specific performance with damages against Y.

III
X and Yentered into a contract of sale over a parcel of land. X, the owner-seller, reserved the right to rescind in
case Y would not comply. Y failed to comply but X gave him a series of extensions. Thereafter, he wanted to
rescind the contract. Can he validly do so? Why? (5%)

Answer: Albano, p. 494-495; Pilipinas Bank vs. IAC, June 30, 1987

No more. In Pilipinas Bank vs. IAC, June 30, 1987, it was said that a contractual provision allowing automatic
rescission is valid. However, it can also be waived. If there was a series of extensions given to the vendee, the
same can be considered a waiver of the contractual provision allowing automatic rescission.

IV
X has a property. He donated it to Y on March 27, 1999. On March 27, 2000, X incurred an obligation from Z.
Can Z file an action for rescission of the donation after a judgment is rendered holding X liable? Why? (10%)

Answer: Albano, pp. 493-494; Siquan vs. Rosa Lim, et. al., G.R. No. 134685, November 19, 1999, 115 SCAD
833

No, because at the time of the donation, there was no credit yet existing. It is a requirement that for rescission
to prosper, the person asking for it has a credit prior to the alienation. Without any prior existing debt, there can
be neither injury nor fraud. While it is necessary that the credit of the plaintiff in the accion pauliana must exist
prior to the fraudulent alienation, the date of the judgment is immaterial. Even if the judgment be subsequent to
the alienation, it is merely declaratory, without retroactive effect to the date when the credit is constituted.
(Siquan vs. Rosa Lim, et. al., G.R. No. 134685, November 19, 1999, 115 SCAD 833).

V
X bought a car from Y valued at P200,000.00 payable in three (3) monthly installments. Upon the signing of the
contract, X paid P100,000.00. The balance was payable in May and June 1993 with an extension of one (1)
month. X failed to pay. Demands were made for the payment, hence, X paid Y the amount of P10,000.00 in
August 1993; P20,000.00 in September 1993; and P10,000.00 in October 1993. On November 3, 1993, Y
notified X that he has rescinded the contract for X’s failure to pay the balance on time. Is the action of Y
proper? Why? (10%)

Answer: Albano, p. 495;

No, because when Y accepted and received delayed payments of installments, though X had been in arrears
beyond the grace period, Y waived the right of rescission. (Tayag, et. al. vs. CA, et. al., G.R. No. 96053, March
3, 1993).

VI
X mortgaged his land and building to GSIS as security for the payment of his obligation. Since he failed to pay
his obligation, GSIS foreclosed the mortgage. Centertown Inc. was the highest bidder bidder. Since the GSIS
was not authorized to engaged in the real estate business, it organized a corporation known as Towers, Inc.

Page 11 of 28
The Tenants Association sued the GSIS, Centertown, and Towers for annulment of the title on the ground that
it is void because it is ultra vires. Will the action prosper? Why? (10%)

Answer: Albano, pp. 497-498; House Int’l. Bldg. Tenants Association vs. IAC, June 30, 1987; Bastida vs. Dy
Buncio and Co., 93 Phil. 195

No, because the Association was neither a party nor privy to the contract of sale or assignment. It has
therefore no right to question the contract. (House Int’l. Bldg. Tenants Association vs. IAC, June 30, 1987). The
action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily.
(Art. 1397, NCC). The reason for the rule that the person prejudiced can question the validity of a contract is
that, he who comes to court must come with clean hands. (Bastida vs. Dy Buncio and Co., 93 Phil. 195).

VII
B, on account of having purchased lands from S, took possession of the same and collected their products.
Subsequently, B and S, by virtue of another contract, “rescinded” the sale, and as a result thereof, B returned
the lands to S who, in turn, bound himself to return to B the part of the price that the latter has paid. Issue: Is B
obliged to return to S the products of the land that B collected during his possession? (10%)

Answer: De Leon, pp. 726-727; Aquino vs. Tanedo, 39 Phil. 517 [1919]; see PAGCOR vs. Court of Appeals,
231 SCRA 354 [1994].

No. Rescission, in the light of Articles 1381, 1382, and 1385, is a relief which the law grants, on the
premise that the contract is valid, for the protection of one of the contracting parties and third persons
from any injury and damage the contract may cause, or to protect some incompatible and preferential
rights created by the contract. Article 1385 refers to contracts that are rescissible in accordance with
law in the cases expressly fixed thereby but does not refer to contracts that are rescinded by mutual
consent and for the mutual convenience of the contracting parties. The rescission in question did not
originate in any of the causes specified in Articles 1381 and 1382, nor is it any relief for the purposes
sought by these articles. Its effects should be determined by the agreement of the parties or by the
application of other legal provisions not by Article 1385. The possession of B, until the contract of sale
was dissolved, and the lands returned by him, was in good faith. As such possessor in good faith, he is
entitled to the fruits received before his possession was legally interrupted (Art. 541.), and, therefore, he
is not obliged to return them to B in the absence of any covenant. (Aquino vs. Tanedo, 39 Phil. 517 [1919];
see PAGCOR vs. Court of Appeals, 231 SCRA 354 [1994].)

VIII
The house in question was originally entered in the assessment rolls in the name of S, judgment debtor of C to
whom the house was sold at public auction pursuant to a writ of execution. Later, it was registered in the name
of B son of S who mortgaged it to a bank to secure the payment of a loan. The bank foreclosed the mortgage
and bought the land together “with all the buildings and improvements” thereon. C charges that any transfer by
from S to B is fictitious, fraudulent and null and void and claims damages against B and the Bank. Would the
action by C for rescission of the transfer of the house from S to B and the claim for damages prosper? (10%)

Answer: De Leon, p. 730; Gigante vs. Republic Savings Bank, 26 SCRA 328 [1968]

No. The bank’s registered mortgage is superior to the judgment and levy and sale in favor of C. Furthermore, S
is not a party to the suit against B and the bank. S is an indispensable party. For any decision on either action
would affect him. He is entitled to be heard, to defend the validity of the transfer to his son, B. (Gigante vs.
Republic Savings Bank, 26 SCRA 328 [1968])

IX
D, mortgagor, transferred his right to redeem an extrajudicially foreclosed property to B. C, the mortgagee-
purchaser, questions the redemption made by B, claiming that the assignment of the right to redeem was
simulated and fi ctitious. Issue: Has C a cause of action to challenge the transfer by D of his right to redeem to
B? (10%)

Answer: De Leon, 755-756; Gorospe vs. Santos, 69 SCRA 191 [1976]

No. Even assuming that the transfer was fictitious, the same could not affect the mortgagee nor cause him any
damage. It matters not to him that the transfer was or was not fraudulently executed. (Gorospe vs. Santos, 69
SCRA 191 [1976].)

X
X, of age, entered into a contract with Y, a minor. X knew and the contract specifically stated the age of Y. May
X successfully demand annulment of the contract? (10%)

Page 12 of 28
Answer: Jurado, p. 759

X cannot successfully demand annulment of the contract. True, said contract is voidable because of the fact
that at the time of the celebration of the contract, Y, the other contracting party, was a minor, and such minority
was known to X (Art. 1327, No. 1; Art. 1390, No. 1, NCC). However, the law is categorical with regard to who
may institute the action for annulment of the contract. In addition to the requirement that the action may be
instituted only by the party who has an interest in the contract in the sense that he is obliged thereby either
principally or subsidiarily, Art. 1397 of the Civil Code further requires that in case of contracts voidable by
reason of incapacity of one of the contracting parties, the party who has capacity cannot allege the incapacity
of the party with who he contracted. Because of this additional requisite, it is clear that Y and not X can institute
the action for annulment.

QUIZ NO. 19
Unenforceable Contracts [Art. 1403-1408]) and (Void or Inexistent Contracts (Art. 1409-1422]
April 24, 2018

I
A and B entered into an oral agreement defining the boundary of their two parcels of land which are adjacent to
one another. A applied for registration of his land but did not follow the oral agreement. B objected on the
ground that the oral agreement must be followed. A contended that such agreement is unenforceable. Is A’s
contention valid? Why? (10%)

Answer: Albano, p. 501; Hernandez vs. CA, 160 SCRA 821

No, because there is no need to put the agreement defining boundary of their two (2) parcels of land to be in
writing because the requirement that contracts pertaining to land must be writing does not apply in an
agreement on the boundary of the same. The Statute of Frauds applies only to leases and conveyances of
land. (Hernandez vs. CA, 160 SCRA 821)

II
A bought a building together with the land upon which it is built form B. One of the conditions is that upon the
payment of ½ of its value, B would assign his rights over the leases to which B did not comply. A demanded
the refund of his money, and since B refused, he filed a suit for collection of sum of money. B filed a motion to
dismiss on the ground that the contract is unenforceable since it is only an oral one. Is the contention correct?
Why? (10%)

Answer: Albano, p. 503; Asia Foundation Co. vs. Paño, G.R. No. 51058, Jan. 27, 1992

No, because the contract no longer falls under the Statute of Frauds, the same having been partly executed as
a result of the payment of ½ of the value of the land and the building. To allow B to interpose the rule in the
Statute of Frauds would be to allow him to perpetuate fraud. The Statute of Fraud was designed to prevent
fraud, not to perpetuate and promote fraud and perjury. Furthermore, A here is not enforcing the contract but
backing out from it because of B’s violation.(Asia Foundation Co. vs. Paño, G.R. No. 51058, Jan. 27, 1992).

III
A and B entered into a contract of sale whereby the parties verbally agreed that A would be allowed to
repurchase the property. Can A enforce the verbal agreement? Explain. (10%)

Answer: Albano, p. 504; Victoriano vs. CA, 194 SCRA 19; PNB vs. Phil. Vegetable Oil, Co., 40 Phil. 857;
Mactan Cebu International Airport Authority vs. CA, et. al., G.R. No. 121506, October 30, 1996, 75 SCAD 722

Yes, under Art. 1403 of the Civil Code, a contract for the sale of real property shall be unenforceable
unless the same or some note or memorandum thereof be in writing and subscribed by the party charged
or his agent. Evidence of the agreement cannot be received without the writing or a secondary evidence
of its contents. In the case at bench, the deed of sale and the verbal agreement allowing the right to
repurchase should be considered as an integral whole. The deed of sale relied upon by the petitioners
is in itself the note or memorandum evidencing the contract. Thus, the requirement of the Statute of
Frauds has been sufficiently complied with. Moreover, the principle of the Statute of Frauds only applies
to executory contracts, and not to contracts either partially or totally performed (citing Victoriano vs.
CA, 194 SCRA 19), as in this case where the sale has been consummated, hence, the same is taken out
of the scope of the Statute of Frauds. As the deed of sale has been consummated, by virtue of which the
petitioner accepted some benefits thereunder, it cannot now deny the existence of the agreement. (Art.
1405, NCC). The Statute of Frauds was enacted for the purpose of preventing fraud. It should not be

Page 13 of 28
made the instrument to further them. (PNB vs. Phil. Vegetable Oil, Co., 40 Phil. 857; Mactan Cebu
International Airport Authority vs. CA, et. al., G.R. No. 121506, October 30, 1996, 75 SCAD 722).

IRAC:
Yes, the verbal agreement maybe enforced.

Article 1403 provides that, a contract for the sale of real property shall be unenforceable unless the same
or some note or memorandum thereof be in writing and subscribed by the party charged or his agent.
Evidence of the agreement cannot be received without the writing or a secondary evidence of its
contents.

In this case, the deed of sale and the verbal agreement allowing the right to repurchase should be
considered as an integral whole. The deed of sale relied upon by the petitioners is in itself the note or
memorandum evidencing the contract. Thus, the requirement of the Statute of Frauds has been
sufficiently complied with. Moreover, the principle of the Statute of Frauds only applies to executory
contracts, and not to contracts either partially or totally performed (citing Victoriano vs. CA, 194 SCRA
19), as in this case where the sale has been consummated, hence, the same is taken out of the scope of
the Statute of Frauds. As the deed of sale has been consummated, by virtue of which the petitioner
accepted some benefits thereunder, it cannot now deny the existence of the agreement. (Art. 1405, NCC).
The Statute of Frauds was enacted for the purpose of preventing fraud. It should not be made the
instrument to further them.

IV
There was an action for reconveyance of a real property allegedly sold but without consideration. It was
contended that the action has prescribed since 16 years have already lapsed. Is the contention correct? Why?
(10%)

Answer: Albano, p. 507; Maneclang vs. Buan, 208 SCRA 179; Santos vs. Santos, et. al., G.R. No. 133895,
October 2, 2001

No, the action has not yet prescribed, because the contract is void.

Neither is their action barred by laches. The elements of laches are: (1) conduct on the part of the defendant,
or of one under whom he claims, giving rise to the situation of which the complaint seeks a remedy; (2) delay in
asserting the complainant’s rights, the complainant having had knowledge or notice of defendant’s conduct as
having been afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the part of the
defendant that the complainant would assert the right in which he bases his suit; and (4) injury or prejudice to
the defendant in the event relief is accorded to the complainant, or the suit is not held barred. (Maneclang vs.
Buan, 208 SCRA 179; Santos vs. Santos, et. al., G.R. No. 133895, October 2, 2001).

V
A and B entered into an oral contract of sale of a parcel of land agreeing on the price, date of payment and
delivery of the title on August 30, 1993. Suppose on August 30, 1993, A will go to B’s house and deliver the
money, but B would refuse to convey the land.

a) Can A sue B to enforce the oral contract? Why? (3%)

b) What is the defense of B, if any? Will it prosper? Why? (3%)
c) Will your answer in No. 1 and 2 be the same if B accepted a downpayment? Explain. (2%)
d) Suppose A has already delivered the consideration, but B refuses now to execute the deed of
conveyance, what would be the remedy of the aggrieved party? Explain. (2%)

Answer: Albano, pp. 500-501; Hernandez vs. CA, 160 SCRA 821; Renato Cenido, etc. vs. Sps. Sta. Ana, G.R.
No. 132474, November 19, 1999

a) No, because the oral contract of sale over real property is unenforceable if not in writing. (Hernandez
vs. CA, 160 SCRA 821; Renato Cenido, etc. vs. Sps. Sta. Ana, G.R. No. 132474, November 19, 1999).
b) The defense of B is that the oral contract is not enforceable, and it would prosper because the
requirement is that, to be enforceable, such contract must be in writing.
c) No more, the defense in Nos. 1 and 2 would no longer prosper because if a downpayment was
accepted, it would mean that the contract is no longer executory but partly executed. A partly executed
contract does not fall under the Statute of Frauds.
d) The aggrieved party can file an action for specific performance or rescission, and in both case, with
damages. (Art. 1191[par. 2], NCC).

VI

Page 14 of 28
A, B, and C entered into a contract of oral partition of a real property they inherited form their parents. Is the
contract enforceable? Why? (10%)

Answer: Albano, p. 501; Vda. de Reyes vs. CA, 199 SCRA 646 [1991]; Gavina Gaglucot-aw, et. al. vs.
Leopoldo Maglucot, et. al., G.R. No. 132518, March 28, 2000

Yes, because it is not a conveyance of land. Article 1403, NCC which requires that conveyances involving land
must be put in writing, does not apply as it applies only to leases and conveyances. Partition is not a lease or
conveyance, but a mere division of the property. (Vda. de Reyes vs. CA, 199 SCRA 646 [1991]; Gavina
Gaglucot-aw, et. al. vs. Leopoldo Maglucot, et. al., G.R. No. 132518, March 28, 2000).

VII
X, etc., presented evidence that they have been in possession of the parcel of land in question since the year
1912 when Y, before his death, delivered to them said land pursuant to a verbal contract of sale for the price of
P1,500.00 payable by installments, of which X, etc., had then paid to Y P500.00 and the latter delivered to
them the documents pertaining to the land; and that since their possession and before them, that of Y, under a
claim of ownership, had been exclusive and continuous, they were entitled to have their title over said parcel of
land registered, as applied for in the registration proceeding. May X, etc., introduce evidence of the alleged
verbal contract of sale? (10%)

Answer: De Leon, pp. 767-768; Almirol and Cariño vs. Monserrat, 48 Phil. 67 [1925].

Yes. The contract was not covered by the Statute of Frauds because the contract was partially executed.
Furthermore, the verbal contract was adduced not for the purpose of enforcing performance thereof, but as the
basis of the lawful possession of the applicants (X, etc.) entitling them to have the land thereby sold registered
in their own names. (Almirol and Cariño vs. Monserrat, 48 Phil. 67 [1925].)

VIII
X entered into a contract with Y (contractor) for the repair of a house. Y undertook to furnish the necessary
materials. Having no money and no credit, Y was unable to continue the purchase of the necessary lumber
from T who refused to sell without payment in advance. X told T he would stand good for the amount of lumber
needed in the repair of his house. T brought action to recover the unpaid balance of the purchase price of
lumber delivered. Was the promise of X unenforceable not being in writing? (10%)

Answer: De Leon, pp. 775-776; Reiss vs. Memije, supra; see Colbert vs. Bachrach, 12 Phil. 83 [1929]

No. The promise of X was not collateral but an original one and, therefore, did not have to be in writing. The
circumstances disclosed that the credit for the lumber was extended by T solely and exclusively to X under a
verbal agreement he had with him. X admitted on the stand that Y had no commercial credit or standing in the
community and it appeared that T, after investigation, absolutely refused to extend Y any credit whatsoever
and that X was well aware of the fact and that X examined every invoice which by agreement was submitted to
him, and that no lumber was delivered without his approval. (Reiss vs. Memije, supra; see Colbert vs.
Bachrach, 12 Phil. 83 [1929].)

IX
According to the complaint filed by H and I, as heirs of the deceased D, they were able to recover in a civil
case, a parcel of land belonging to D. They were assisted by their lawyer L. The complaint alleged that L,
taking advantage of the ignorance of his clients, succeeded in getting them to sell the land at an inadequate
price to B a few days after the decision became final and executory. It alleged that the sale was fictitious and
that eight months later, another fictitious sale was made transferring the land to L himself. In his motion to
dismiss, L argued that since the sale were executed after the decision in the civil case became final and
executory, they were not void ab initio but merely voidable at the instance of the vendor under the rule laid
down in Wolfson vs. Estate of Enriquez. (20 Phil. 340 [1911].) Is the sale to L void ab initio or merely voidable?
(10%)

Answer: De Leon, pp. 791-792; Ruiz vs. Court of Appeals, 79 SCRA 525 [1977]

“The argument stressed by L x x x is of no consequence to the case at bar not only because the
environmental milieu in the cited case is not entirely identical and similar to the facts and motivations
sought to be proved by H and I in their complaint, but also because the averments contained in the said
complaint will sufficiently permit adducement of facts not only that the sale of the land in question to L,
as counsel for H and I in the civil case, was actually perfected while the land in dispute was still in
litigation, but also that there was collusion [between] B and L to bring about the assailed transaction,
induced primarily by the ascendancy exercised by L over his ‘uncouth’ clients in order to make it appear
that the said land was purchased by a buyer in good faith thereby precluding its legitimate owners from
recovering the same in view of the protective provisions of the Land Registration Act towards
Page 15 of 28
purchasers in good faith and for value. Evidently, a contract entered into under such circumstances, to
the extent that it prejudices third persons with legitimate claims, is null and void ab initio.” (Ruiz vs.
Court of Appeals, 79 SCRA 525 [1977].)

X
S obtained a homestead patent over a land. Within the prohibitive fi ve-year period, S sold the land to B. This
sale was evidenced by a deed of sale, but the deed was not registered. About ten (10) years later, S executed
another deed of sale over the same parcel of land in favor of B for the same price. This deed was registered
and a new certificate was issued in the name of B. Subsequently, the ownership of the land was placed in
issue in various litigations between the vendor and the vendee. Was the first sale ratified by the second sale?
(10%)

Answer: De Leon, p. 793; Menil and Nayve vs. Court of Appeals, 84 SCRA 453 [1978]; see also Arsenal vs.
Intermediate Appellate Court, 143 SCRA 40 [1986]

No. “It cannot be claimed that there are two contracts: one of which is undisputably null and void, and another,
having been executed after the lapse of the 5-year prohibitory period, which is valid. The second contract of
sale is admittedly a confirmatory deed of sale. Inasmuch as the first contract of sale is void for it is expressly
prohibited or declared void by law, it, therefore, cannot be confirmed or ratified. x x x.” (Menil and Nayve vs.
Court of Appeals, 84 SCRA 453 [1978]; see also Arsenal vs. Intermediate Appellate Court, 143 SCRA 40
[1986]).

QUIZ NO. 20
Natural Obligations [Art. 1423-1430]) and Estoppel [Art. 1431-1439]
May 7, 2018

I
X lent his car to Y with the undertaking to return it on or before January 31, 1992. Instead of returning it to X, Y
sold and delivered the car to Z. One week after X and Y entered into a contract whereby X sold the car to Y
who, after acquiring ownership, went to Z seeking to recover the car from the latter because at that time of
selling the car to Z, he accordingly has to no right to sell the car because he is not the owner thereof. Will Y’s
action prosper? Why? (10%)

Answer: Albano, p. 512

No, because he is bound by the principle of estoppel. Under the law, when a person who is not the owner of
the thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes
by operation of law to the buyer or grantee. (Art. 1434, NCC).

II
A contract of lease was entered into by and between X and Y over a house belonging to X. After a period of
five years, Y discovered that the land belongs to the State, hence, Y refused to further pay his rentals to X
contending that X is not entitled to the rentals. He further asked reimbursement of the rentals he previously
paid. Is the contention of Y correct? Why (10%)

Answer: Albano, p. 513; Borre vs. CA, G.R. No. L-57204, March 14, 1988, 158 SCRA 560

No, because the lessee or bailee is estopped from asserting title to the thing leased or received, as against the
lessor or bailor. (Art. 1436, NCC; Borre vs. CA, G.R. No. L-57204, March 14, 1988, 158 SCRA 560). He cannot
also question the title of the lessor because he is estopped from doing so.

III
X contracted a loan with the DBP in 1965 but failed to pay, hence, in 1966, the obligation became due and
demandable. In 1987, the DBP unearthed his obligation and demanded payment. Upon receipt of the demand
letter, X paid the obligation together with its interest. Advised that the action has already prescribed, he sued
DBP for reimbursement of whatever he had paid. Will the action prosper? Why? (10%)

Answer: Albano, p. 510; DBP vs. Adil, G.R. No. L-48889, May 11, 1988

No, because when a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who
voluntarily performs the contract cannot recover what he has delivered or the value of the service he has
rendered. (Art. 1424, NCC; DBP vs. Adil, G.R. No. L-48889, May 11, 1988).

IV

Page 16 of 28
Suppose in the problem above (Question No. III), there was a payment of X’s obligation in 1986 by a friend, A,
without his knowledge and consent. Can A, the friend who made the payment, ask for reimbursement from X?
Can A recover from X? Why? (10%)

Answer: Albano, p. 510

No. Under the law, when without the knowledge or against the will of the debtor, a third person pays a debt
which the obligor is not legally bound to pay because the action thereon has prescribed, but the debtor
voluntarily reimburses the third person, the obligor cannot recover what he has paid. (Art. 1425, NCC).

V
A and B entered into a contract whereby both parties benefited out of it. At the time of the commencement of
their rights, however, A was a minor. Can he attack the validity of the contract? Why? (10%)

Answer: Albano, p. 513; Mercado vs. Espiritu, 37 Phil. 215

No, because he is bound by the principle of estoppel from doing so. (Mercado vs. Espiritu, 37 Phil. 215).

VI
X, the father of Y, was indebted to Z in the amount of P1M during his lifetime. He died without paying it. Y
inherited from X properties worth only P400,000.00. Y paid Z the amount of P1M one month after X’s death.
Can Y ask for the refund of what he paid to Z? Why? (10%)

Answer: Albano, pp. 510-511

No. Under the law, when a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value
of the property which he received by will or by the law of intestacy from the estate of the deceased, the
payment is valid and cannot be rescinded by the payer. (Art. 1429, NCC).

VII
Suppose in the problem above (Question No. VI), X executed a will but it was declared void and the heirs paid
a legacy to a friend of his father, can Y revoke it or ask for a refund? Why? (10%)

Answer: Albano, p. 511

No, because when a will is declared void because it has not been executed in accordance with the formalities
required by law, but one of the intestate heirs, after the settlement of the debts of the deceased, pays a legacy
in compliance with a clause in the defective will, the payment is effective and irrevocable. (Art. 1430, NCC).

VIII
A lease contract covering various construction equipment was entered into by the parties. The lessor sent the
lessee a statement of account for unpaid rentals amounting to P342,909.38 which was received by the lessee
without any protest. The lessee did not likewise controvert it; instead, it asked for ample time to source funds to
substantially settle the account. Can it later on deny? Why? (10%)

Answer: Albano, pp. 511-512; Roblett Industrial Corporation vs. CA, et. al., G.R. No. 116682, January 2, 1997,
77 SCAD 642, citing Panay Electric Co. vs. CA, 174 SCRA 500; Pureza vs. CA, G.R. No. 122053, May 15,
1998, 94 SCAD 303

No, because it is in estoppel in pais. Estoppel in pais arises when one, by his acts, representations or
admissions, or by his own silence when he ought to speak out, intentionally or through culpable negligence,
induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that
he will be prejudiced if the former is permitted to deny the existence of such facts. (Roblett Industrial
Corporation vs. CA, et. al., G.R. No. 116682, January 2, 1997, 77 SCAD 642, citing Panay Electric Co. vs. CA,
174 SCRA 500; Pureza vs. CA, G.R. No. 122053, May 15, 1998, 94 SCAD 303).

IX
A purchased from ABC Realty Corp. a parcel of land on installment basis payable within two (2) years at the
rate of P10,000.00 per month. On the fourth month, he could no longer pay the balance, hence, he talked to B,
his brother-in-law, to help him pay. B agreed but with the condition that A would sell one-half (1/2) of the land
to B. They agreed and A executed a deed of sale over ½ of said property subject to the condition that delivery
shall be made after title shall have been issued to A. Title was issued to A after full payment; hence, B
demanded the delivery of ½ of the land. A refused contending that he could not have sold it when he was not
yet the owner. Is A’s contention correct? Why? (10%)

Page 17 of 28
Answer: Albano, p. 512; Bucton vs. Gabar, 55 SCRA 499; Martin vs. Reyes, 91 Phil. 666

No, because a seller need not be the owner of the property at the time of the perfection of the contract, but he
must be the owner at the time of the delivery. (Art. 1459, NCC). Furthermore, where one who is not yet the owner
of a property sells it to another and subsequently acquires ownership over the same, such title passes by
operation of law to the buyer or grantee. (Art. 1434, NCC; Bucton vs. Gabar, 55 SCRA 499; Martin vs. Reyes,
91 Phil. 666).

X
A contract of loan was entered into between the petitioner and private respondent. The loan was intended to
be for P300,000.00 only. The wife of the respondent signed blanked papers/blank forms of real estate
mortgage where the amount of P3,000,000.00 was written in pencil. It turned out that the respondent applied
for a P3,000,000.00 loan and that the paraphernal properties of the wife were mortgaged using the blank forms
signed by the wife. The bank did not investigate the authority to mortgage, but granted the loan instead,
without undergoing the usual bank procedure. When informed of the mortgage, she filed a suit to nullify the
same as she did not authorize her husband to do so. Her residence certificate was also spurious. At the trial, it
was shown that mortgage forms were signed in blank. The RTC rendered judgment in favor of the plaintiff,
which was affirmed by the CA. The bank contended before the SC that respondent/wife was in estoppel from
questioning the validity of the real estate mortgage. Is the contention correct? Why? (10%)

Answer: Albano, pp. 514-515; PBCom vs. CA, et. al., G.R. No. 109803, April 20, 1998, 93 SCAD 601

No. The “doctrine of equitable estoppel” does not apply to respondent. Article 1431 provides that “through
estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be
denied or disproved as against the person relying thereon.” Implementing this substantive law, Section 2(a) of
Rule 131 provides: “Whenever a party has by his own declaration, act or omission, intentionally and
deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any
litigation arising out of such declaration, act or omission be permitted to falsify it.” By its incorporation in the
Civil Code, estoppel in our jurisdiction has become an equitable defense that is both substantive and remedial.
Its successful invocation can therefore bar a right and not merely its equitable enforcement.

The reason why estoppel does not apply to respondent is because she did not deliberately mislead the bank to
believe that she was putting up her paraphernal properties to secure the P3,000,000.00 loan. It was her
husband who made the representation. In fact, the bank’s reliance on the mortgage application signed in blank
is not a reasonable reliance. As a banking institution, it was grossly negligent when it took no step to verify
whether she was offering her properties as collateral; when it made no credit check on the debtor. The
business of a bank is affected with public interest and it should observe a higher standard of diligence when
dealing with the public. Neither will it matter if the bank is misled by a third person to the contract. Under Art.
1342, NCC, the misrepresentation of a third person will vitiate consent if it has resulted in substantial mistake
and the same is mutual. (PBCom vs. CA, et. al., G.R. No. 109803, April 20, 1998, 93 SCAD 601).

QUIZ NO. 21
Trusts [Art. 1440-1457]
May 7, 2018

I
During the existence of the marriage between A and B, they filed an application for homestead. Before B died,
they were able to comply with all the requirements under the law, and before the patent could be issued, B died.
A married C, afterwards, a patent was issued under the name of A and C. The son of A and B filed an action for
partition seeking for the ½ portion of the homestead as the share of his mother. Will the action prosper? Why?
(10%)

Answer: Albano, p. 524; Magallon vs. Montejo, December 16, 1986

Yes, because A and C merely hold the said portion in trust for the true owner, and they have the
obligation to convey to plaintiff that portion of the land in question to which he now claims as said
portion rightfully pertains to plaintiff’s deceased mother as her share in the conjugal partnership with A.
(Magallon vs. Montejo, December 16, 1986).

IRAC:
Page 18 of 28
Yes, the action will prosper because A and C merely hold the said portion in trust for the benefit of the true owner.

Article 1456 provides that,”if property is acquired through mistake or fraud, the person obtaining it is, by force of
law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.”

In this case, the land in question, which rightfully pertained to the conjugal partnership of A and B, and should
have been titled in the names of said spouses, was, through fraud or mistake, registered in the names of A and
C. In such situation, the property should be regarded as impressed with an implied or a constructive trust for the
party rightfully entitled thereto. Thus, the respondents, as the trustee of a constructive trust, has an obligation
to convey to plaintiff that portion of the land in question to which he now claims as said portion rightfully
pertains to plaintiff’s deceased mother as her share in the conjugal partnership with A.

II
Joaquin Reyes bought from Julio Cruz a residential lot of 300 square meters in Quezon City for which Joaquin
paid Julio the amount of P300,000.00. When the deed was about to be prepared, Joaquin told Julio that it be
drawn in the name of Joaquina Roxas, his acknowledged natural child. Thus, the deed was so prepared and
executed by Julio. Joaquina then built a house on the lot where she, her husband, and children resided. Upon
Joaquin’s death, his legitimate children sought to recover possession and ownership of the lot claiming that
Joaquina Roxas was but a trustee of their father. Will the action against Joaquina Roxas prosper? (10%)

Answer: Albano, p. 524; De los Santos vs. Reyes, et. al., L-45027, January 27, 1992

Yes, because there was an implied trust. In De los Santos vs. Reyes, et. al., L-45027, January 27, 1992, it
was said that there is an implied trust when property is sold, and the legal estate is granted to one party
but the price is paid by another for the purpose of having the beneficial interest of the property. However,
if the person to whom title is conveyed is a child, legitimate or illegitimate, of the one paying the price of
the sale, no trust is implied by law, it being disputably presumed that there was a gift in favor of the
child. It is clear from the facts that a trust was really created.

IRAC:
Yes, the action against Joaquina Roxas will prosper because there was an implied trust.

Article 1448 provides that, “There is an implied trust when property is sold, and the legal estate is granted to one
party but the price is paid by another for the purpose of having the beneficial interest of the property. The former
is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child,
legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably
presumed that there is a gift in favor of the child.”

In this case, it is clear from the facts that a trust was really created when the property was drawn in the name of
Joaquina, the natural child of Joaquin whom the property was bought, which the former as trustee and the latter
is the beneficiary. It is likewise, the disputable presumption of a gift as specified in the provision has been amply
overcome by the set of facts that such was an implied trust held by Joaquina. Thus, Joaquina as trustee has the
obligation to convey to Joaquin the assailed property.

III
X executed a real estate mortgage in favor of PNB to secure the payment of Y’s obligation. One year later, Y
executed a renewal of the loan and the mortgage representing X who granted him a Special Power of Attorney
for that purpose as there was an agreement that the proceeds of the renewal of the loan would be divided
between X and Y. After Y got the money, he failed to deliver the ½ share of X, hence, he went to the manager
of PNB and delivered a letter asking that in case Y would renew his loan the following year, his property should
not be included in the list of collateralsand in effect revoking the special power of attorney of Y. When the loan
was renewed, his property was again included, despite the assurance of the manager of the PNB that X’s
property would not be included. Y failed to pay his obligation, hence, the foreclosure of the mortgage. Is the
foreclosure valid? Why? (10%)

Answer: Albano. P. 525; PNB vs. IAC, September 18, 1990

No, because under the doctrine of promissory estoppel, the act or assurance of the PNB manager that
he shall not include the property of X as collateral for any renewal of the loan of Y is binding upon the
bank. Having given that assurance, the bank may not turn around and do the exact opposite of what it
Page 19 of 28
should not do. One may not go back on his own acts and representations to the prejudice of the other
party who relied upon them. (PNB vs. IAC, September 18, 1990).

IRAC:
No, PNB cannot validly foreclosed X’s property on the ground of estoppel.

Article 1431 provides that, “through estoppel an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disapproved as against the person relying thereon.”

The RTC’s ruling is based on the doctrine of promissory estoppel enunciated in Ramos v. Central Bank (41
SCRA 565).This doctrine may arise from the making of a promise, even though without consideration, if it was
intended that the promise should be relied upon, and if a refusal to enforce it would be virtually to sanction the
perpetration of fraud or would result in other injustice. Reliance by promissee is generally evidenced by action
or forbearance on his part, and the idea has been expressed that such action or forbearance would reasonably
have been expected by the promissor.

In this case, the act or assurance of the PNB manager that he shall not include the property of X as
collateral for any renewal of the loan of Y is binding upon the bank. Having given that assurance, the
bank may not turn around and do the exact opposite of what it should not do. One may not go back on
his own acts and representations to the prejudice of the other party who relied upon them. Thus, the
mortgage which Y gave to the bank on X’s lot as collateral for her renewal of loan was null and void for having
been already disauthorized by X.

IV
Can the PNB, in the problem above (Question No. III), interpose the defense that the revocation of the SPA is
not valid since it was not in a public instrument? Explain. (10%).

Answer: Albano, pp. 525-526; Doliendo vs. Depiño, 12 Phil. 758; Alano vs. Babasa, 10 Phil. 511; PNB vs. IAC,
September 18, 1990

No. While it is true that under Art. 1358, NCC, the law requires that acts or contracts which have for their
object the extinguishment of real rights over immovable property must appear in a public instrument;
nevertheless, a revocation embodied in private writing is valid and binding between the parties.
(Doliendo vs. Depiño, 12 Phil. 758). The requirement that it be in a public instrument is a mere condition
of form in order that such contract may be valid against third persons. (Alano vs. Babasa, 10 Phil. 511;
PNB vs. IAC, September 18, 1990).

IRAC:
No, because a revocation embodied in private writing is valid and binding between the parties and the
requirement that it be in a public instrument is a mere condition of form in order that such contract may be valid
against third persons.

Article 1358 provides that, acts or contracts which have for their object the extinguishment of real rights over
immovable property must appear in a public instrument.

In this case, while it is true that under Art. 1358, NCC, the law requires that acts or contracts which have
for their object the extinguishment of real rights over immovable property must appear in a public
instrument; nevertheless, a revocation embodied in private writing is valid and binding between the
parties. The requirement that it be in a public instrument is a mere condition of form in order that such
contract may be valid against third persons. Thus, the SPA made in private writing is valid and binding
between the parties.

V
X and Y are married. They have children, A, B, and C. During their lifetime, they transferred a real property to D,
their granddaughter. After their death, A, B, and C filed an action for partition against D, who interposed the
defense of prescription, the same having been based on an implied trust. Is the defense proper? Why? (10%)

Answer: Albano, p. 527; De Buencamino vs. De Matias, et. al., 16 SCRA 849

Page 20 of 28
No, because while the implied or constructive trust prescribes in 10 years, the rule does not apply where
the fiduciary relation exists and is recognized by the trustee. Here, there was reliance on D’s integrity
and fidelity in carrying out the wishes of her grandparents. As long as the trustee recognizes the trust,
the defense of prescription does not apply. (De Buencamino vs. De Matias, et. al., 16 SCRA 849).

IRAC:
No, the defense is not proper because the rule on prescription does not apply where fiduciary relation exists and
is recognized by the trustee.

The Court ruled in the same facts that (Buencamino, et.al vs De Matias, et.al), while the implied or constructive
trust prescribes in 10 years, the rule does not apply where the fiduciary relation exists and is recognized
by the trustee. Continuous recognition of a resulting trust precludes any defense of laches in a suit to declare
and enforce the trust.

In this case, A, B, and C relied on D’s integrity and fidelity in carrying out the wishes of her grandparents and
as long as the trustee, D, recognizes the trust, the defense of prescription does not apply.

VI
In 1930, Enrique Salvatierra died without any issue. He was survived by his brothers Tomas, Bartolome,
Venancio, Macario, and a sister named Marcela. He left several properties but it appeared that Anselmo
registered Lot No. 26 in his name with evident bad faith. The question raised before the SC was the determination
of the applicable prescriptive period to file an action, whether it is based on Article 1391 or Article 1144 of the
Civil Code. Decide. (10%)

Answer: Albano, p. 528; Salvatierra vs. CA, et. al., G.R. No. 107797, August 26, 1996, 73 SCAD 586; Ramos,
et. al. vs. CA, 61 SCRA 284

The prescriptive period is based on Article 1144 of the Civil Code as it involves fraud in registering Lot
No. 26 in Anselmo’s name. In effect, an implied trust was created by virtue of article 1456 of the Civil
Code which says that if property is acquired through mistake or fraud, the person obtaining it is, by force
of law, considered a trustee of an implied trust for the benefit of the person from whom the property
comes. The period is 10 years. (Salvatierra vs. CA, et. al., G.R. No. 107797, August 26, 1996, 73 SCAD
586).

Implied trust is defined as the right, enforceable solely in equity, to the beneficial enjoyment of property,
the legal title to which is vested in another and is further subdivided into resulting and constructive trust.
(Ramos, et. al. vs. CA, 61 SCRA 284). While resulting trust is one raised by implication of law and
presumed to have been contemplated by the parties, constructive trust, on the other hand, is one raised
by construction of law or arising by operation of law. (Ramos, et. al. vs. CA, supra).

This case more specifically involves constructive trust. In a more restricted sense, it is a trust not created
by any words, either expressly or impliedly, evincing a direct intention to create a trust, but by the
construction of equity in order to satisfy the demands of justice. It does not arise by agreement or
intention but by operation of law.

VII
A 30-door apartment was leased to several tenants with Rosito Uy as President. He was designated by the
tenants’ association to negotiate for the purchase of the same by the tenants, but it turned out that he bought
the property from the owner. Feeling betrayed, they sued for redemption alleging that there was implied trust
between them and Mr. Uy. The RTC held that there was an implied trust, but the Court of Appeals reversed it. If
you were the ponente on appeal, how would you decide? Why? (10%)

Answer: Albano, pp. 528-529; Policarpio vs. CA, et. al., G.R. No. 116211, March 7, 1997, 80 SCAD 302

I would decide in favor of the tenants as there was implied trust between the tenants and Mr. Uy. Implied
trusts are those which, without being expressed, are deducible from the nature of the transaction by

Page 21 of 28
operation of law as matters of equity, independently of the particular intention of the parties. A
constructive trust, as invoked by the tenants, can be implied from the nature of the transaction as a
matter of equity, regardless of the absence of such intention in the purposes of their association,
especially so that during the negotiation, Uy represented that he was not only representing himself but
also the tenants.

Considering that Uy willfully violated the trust reposed in him by the tenants, it is a serious matter of
morality, justice, conscience, and fair dealing that he should not be allowed to profit from his breach of
trust.

Every person who through an act of performance by another, or any other means, acquires or comes
into possession of something at the expense of the latter without just or legal ground, shall return the
same to him. (Policarpio vs. CA, et. al., G.R. No. 116211, March 7, 1997, 80 SCAD 302, citing Art. 22, NCC).
In this case, the petitioner was granted the opportunity to purchase the property because the actuations
of Mr. Uy showed nothing but greed as he purchased the apartments for himself at the bargain price so
he could sell them at a profit at the expense of the tenants.

IRAC:
I would decide in favor of the tenants as there was implied trust between the tenants and Mr. Uy.

The Court ruled in the same facts that, implied trusts are those which, without being expressed, are
deducible from the nature of the transaction by operation of law as matters of equity, independently of
the particular intention of the parties. A constructive trust, as invoked by the tenants, can be implied
from the nature of the transaction as a matter of equity, regardless of the absence of such intention in
the purposes of their association, especially so that during the negotiation, Uy represented that he was
not only representing himself but also the tenants. Considering that Uy willfully violated the trust
reposed in him by the tenants, it is a serious matter of morality, justice, conscience, and fair dealing that
he should not be allowed to profit from his breach of trust. Every person who through an act of
performance by another, or any other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same to him. (Policarpio vs. CA, et. al.,
G.R. No. 116211, March 7, 1997, 80 SCAD 302, citing Art. 22, NCC).

In this case, the petitioner was granted the opportunity to purchase the property because the actuations
of Mr. Uy showed nothing but greed as he purchased the apartments for himself at the bargain price so
he could sell them at a profit at the expense of the tenants. Thus, the petitioner is granted the opportunity to
purchase the property which should have been his long ago had Uy been faithful to his trust.

VIII
The owner of a property conveyed it to the government with the condition that it would be used for airport
purposes. It was agreed that if no longer used for that purpose, the same may be repurchased by the former
owner. The government did not use the property for that purpose. May the right to repurchase be enforced by
the former owner? Explain and state the basis. (10%)

Answer: Albano, p. 529; Heirs of Moreno vs. Mactan-Cebu International Airport Authority, 413 SCRA 507 [2003]

Yes. The right to repurchase the property may be enforced based on a constructive trust constituted on
the property held by the government in favor of the former one that is akin to the implied trust referred
to in Art. 1454 of the Civil Code, “If an absolute conveyance of property is made in order to secure the
performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If
the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the
reconveyance of the property to him.” The lots were conveyed to the government with the latter obliging
itself to use the realties for the expansion of Lahug Airport; failing to keep its bargain, the government
can be compelled by petitioners to reconvey the parcels of land to them, otherwise, petitioners would

Page 22 of 28
be denied the use of their properties upon a state of affairs that was not conceived nor contemplated
when the expropriation was authorized. (Heirs of Moreno vs. Mactan-Cebu International Airport
Authority, 413 SCRA 507 [2003]).

IRAC:
Yes. The right to repurchase the property may be enforced based on a constructive trust constituted on
the property held by the government in favor of the former one that is akin to the implied trust referred
to the Civil Code.

Article 1454 provides that, “If an absolute conveyance of property is made in order to secure the
performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If
the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the
reconveyance of the property to him.”

In this case, the lots were conveyed to the government with the latter obliging itself to use the realties
for the expansion of Lahug Airport; failing to keep its bargain, the government can be compelled by
petitioners to reconvey the parcels of land to them, otherwise, petitioners would be denied the use of
their properties upon a state of affairs that was not conceived nor contemplated when the expropriation
was authorized.

IX
In 1935, X was able to register a parcel of land belonging to A in his own name without the knowledge of the
latter. A died in 1945 without knowing that the land was already titled in the name of X. He was survived by two
legitimate children, B and C. In 1955, X also died, survived also by two legitimate children, D and E. In 1985, D
and E demanded extrajudicially from B and C that they vacate the premises of the property on the ground that
their father, X, is the registered owner of the property. B and C refused and immediately instituted the present
action for reconveyance of the subject property based on fraud. D and E, however, have interposed the defenses
of prescription and laches. If you are the judge, how will you decide the controversy? Reasons. (10%)

Answer: Jurado, pp. 795-796; Caragay-Layno vs. CA, 133 SCRA 718

If I am the judge, I shall decide the controversy in favor of the plaintiffs, B and C. The reason is obvious.
They have acquired the subject property by succession from their father, A.

But then, how about the defenses of extinctive prescription and laches? Are not these defenses
meritorious?

The above defenses are not meritorious.

As far as the defense of prescription is concerned, it must be observed that the plaintiffs and their
predecessor-in-interest have always been in possession of the subject property. The constructive notice
rule, therefore, cannot be invoked as against them. Consequently, B and C are deemed to have
discovered the fraud only in 1985 when D and E made a demand upon them to vacate the premises.
Besides, and this even more decisive, the present action is in reality an action to quiet title. It is, of
course, well-settled that an action to quiet title is imprescriptible.

Anent the defense of laches, suffice it to state that if anybody is guilty of laches, it should be the
defendants. They had a period of more than forty years within which to assert their rights as registered
owners. They slept on their rights. They should not, therefore, be allowed to invoke the doctrine of stale
demands. (See Caragay-Layno vs. CA, 133 SCRA 718).

IRAC:
If I am the judge, I shall decide the controversy in favor of the plaintiffs, B and C because they have
acquired the subject property by succession from their father A. And with regards to the interposed
defenses of prescription and laches, this cannot be invoked against A and B for the reason that the property falls
within settled jurisprudence that an action to quiet title to property in one’s possession is imprescriptible.

Page 23 of 28
The Court ruled in the same facts, Caragay-Layno vs. CA, that, prescription cannot be invoked against the
plaintiff for the reason that as lawful possessor and owner of the disputed portion, her cause of action for
reconveyance which, in effect, seeks to quiet title to the property falls within settled jurisprudence that an action
to quiet title to property in one’s possession is imprescriptible.

In this case, the plaintiffs and their predecessor-in-interest have always been in possession of the subject
property. The constructive notice rule, therefore, cannot be invoked as against them. Consequently, B
and C are deemed to have discovered the fraud only in 1985 when D and E made a demand upon them
to vacate the premises. Besides, and this even more decisive, the present action is in reality an action
to quiet title. It is, of course, well-settled that an action to quiet title is imprescriptible.

Anent the defense of laches, suffice it to state that if anybody is guilty of laches, it should be the
defendants. They had a period of more than forty years within which to assert their rights as registered
owners. They slept on their rights. They should not, therefore, be allowed to invoke the doctrine of stale
demands.

X
Margarita owned three parcels of unregistered land in Paringao and in Baccuit, Bauang, La Union, each
measuring 4,512 square meters, 1,986 square meters and 3,454 square meters. The properties were individually
covered by tax declaration all in her name. Sometime in 1968, Margaritas son, Roberto, applied for a non-
immigrant visa to the United States, and to support his application, he allegedly asked Margarita to transfer the
tax declarations of the properties in his name. For said purpose, Margarita, unknown to her other children,
executed an Affidavit of Transfer of Real Property whereby the subject properties were transferred by donation
to Roberto. Not long after, Roberto’s visa was issued and he was able to travel to the U.S. as a tourist and
returned in due time. In 1979, he adopted respondents Pedro and Marilou and then he married respondent
Estella

In July 1990, Roberto sold the 4,512 sq m property in Baccuit to the spouses Mario and Julia Campos
for P23,000.00. Then in August 1992, he sold the 1,986 sq m and 3,454 sq m lots in Paringao, respectively, to
Marilou for P100,000.00 and to Pedro for P40,000.00. Allegedly, these sales were not known to Margarita and
her other children.

It was only in August 1995, at Roberto’s wake, that Margarita came to know of the sales as told by Pedro
himself. In February 1996, Margarita, represented by her daughter, Luz, instituted a complaint for the annulment
of said sales and for the recovery of ownership and possession of the subject properties. Margarita admitted
having accommodated Roberto’s request for the transfer of the properties to his name, but pointed out that the
arrangement was only for the specific purpose of supporting his U.S. visa application. She emphasized that she
never intended to divest herself of ownership over the subject lands and, hence, Roberto had no right to sell
them to respondents and the Spouses Campos. Hence, she principally prayed that the sales be annulled, and
that the subject properties be reconveyed to her. Is Margarita correct? Reasons. (10%)

Answer: Estate of Margarita D. Cabacungan vs. Marilou Laigo, G.R. No. 175073, August 15, 2011

Margarita is correct.

A trust is the legal relationship between one person having an equitable ownership of property and another
person owning the legal title to such property, the equitable ownership of the former entitling him to the
performance of certain duties and the exercise of certain powers by the latter. [30] Trusts are either express or
implied.[31] Express or direct trusts are created by the direct and positive acts of the parties, by some writing or
deed, or will, or by oral declaration in words evincing an intention to create a trust.[32]Implied trusts also called
trusts by operation of law, indirect trusts and involuntary trusts arise by legal implication based on the presumed
intention of the parties or on equitable principles independent of the particular intention of the parties. [33] They
are those which, without being expressed, are deducible from the nature of the transaction as matters of intent
or, independently of the particular intention of the parties, as being inferred from the transaction by operation of
law basically by reason of equity.[34]

Implied trusts are further classified into constructive trusts and resulting trusts. Constructive trusts, on the one
hand, come about in the main by operation of law and not by agreement or intention. They arise not by any word
or phrase, either expressly or impliedly, evincing a direct intention to create a trust, but one which arises in order
to satisfy the demands of justice.[35] Also known as trusts ex maleficio, trusts ex delicto and trusts de son
tort, they are construed against one who by actual or constructive fraud, duress, abuse of confidence,
commission of a wrong or any form of unconscionable conduct, artifice, concealment of questionable means, or
who in any way against equity and good conscience has obtained or holds the legal right to property which he
Page 24 of 28
ought not, in equity and good conscience, hold and enjoy. [36] They are aptly characterized as fraud-rectifying
trust,[37] imposed by equity to satisfy the demands of justice[38] and to defeat or prevent the wrongful act of one
of the parties.[39] Constructive trusts are illustrated in Articles 1450, 1454, 1455 and 1456.[40]

On the other hand, resulting trusts arise from the nature or circumstances of the consideration involved in a
transaction whereby one person becomes invested with legal title but is obligated in equity to hold his title for the
benefit of another. This is based on the equitable doctrine that valuable consideration and not legal title is
determinative of equitable title or interest and is always presumed to have been contemplated by the
parties.[41] Such intent is presumed as it is not expressed in the instrument or deed of conveyance and is to be
found in the nature of their transaction.[42] Implied trusts of this nature are hence describable as intention-
enforcing trusts.[43] Specific examples of resulting trusts may be found in the Civil Code, particularly Articles 1448,
1449, 1451, 1452 and 1453.[44]

Articles 1448 to 1456 of the Civil Code enumerate cases of implied trust, but the list according to Article 1447 is
not exclusive of others which may be established by the general law on trusts so long as the limitations laid down
in Article 1442 are observed,[45] that is, that they be not in conflict with the New Civil Code, the Code of
Commerce, the Rules of Court and special laws.[46]

While resulting trusts generally arise on failure of an express trust or of the purpose thereof, or on a conveyance
to one person upon a consideration from another (sometimes referred to as a purchase-money resulting trust),
they may also be imposed in other circumstances such that the court, shaping judgment in its most efficient form
and preventing a failure of justice, must decree the existence of such a trust. [47] A resulting trust, for instance,
arises where, there being no fraud or violation of the trust, the circumstances indicate intent of the parties that
legal title in one be held for the benefit of another. [48] It also arises in some instances where the underlying
transaction is without consideration, such as that contemplated in Article 1449[49] of the Civil Code. Where
property, for example, is gratuitously conveyed for a particular purpose and that purpose is either fulfilled or
frustrated, the court may affirm the resulting trust in favor of the grantor or transferor, [50] where the beneficial
interest in property was not intended to vest in the grantee.[51]

Intention although only presumed, implied or supposed by law from the nature of the transaction or from the facts
and circumstances accompanying the transaction, particularly the source of the consideration is always an
element of a resulting trust[52] and may be inferred from the acts or conduct of the parties rather than from direct
expression of conduct.[53] Certainly, intent as an indispensable element, is a matter that necessarily lies in the
evidence, that is, by evidence, even circumstantial, of statements made by the parties at or before the time title
passes.[54] Because an implied trust is neither dependent upon an express agreement nor required to be
evidenced by writing,[55]Article 1457[56] of our Civil Code authorizes the admission of parole evidence to prove
their existence. Parole evidence that is required to establish the existence of an implied trust necessarily has to
be trustworthy and it cannot rest on loose, equivocal or indefinite declarations.[57]

Thus, contrary to the Court of Appeals finding that there was no evidence on record showing that an implied trust
relation arose between Margarita and Roberto, we find that petitioner before the trial court, had actually adduced
evidence to prove the intention of Margarita to transfer to Roberto only the legal title to the properties in question,
with attendant expectation that Roberto would return the same to her on accomplishment of that specific purpose
for which the transaction was entered into. The evidence of course is not documentary, but rather testimonial.

We recall that the complaint before the trial court alleged that the 1968 Affidavit of Transfer was executed merely
to accommodate Robertos request to have the properties in his name and thereby produce proof of ownership
of certain real properties in the Philippines to support his U.S. visa application. The agreement, the complaint
further stated, was for Margarita to transfer the tax declarations of the subject properties to Roberto for the said
purpose and without the intention to divest her of the rights of ownership and dominion. [58] Margarita, however,
died before trial on the merits ensued;[59] yet the allegation was substantiated by the open-court statements of
her daughter, Luz, and of her niece, Hilaria Costales (Hilaria), a disinterested witness.

In her testimony, Luz, who affirmed under oath her own presence at the execution of the Affidavit of Transfer,
described the circumstances under which Margarita and Roberto entered into the agreement. She narrated that
Roberto had wanted to travel to the U.S and to show the embassy proof of his financial capacity, he asked to
borrow from Margarita the properties involved but upon the condition that he would give them back to her upon
his arrival from the United States. She admitted that Roberto’s commitment to return the properties was not put
in writing because they placed trust and confidence in him, and that while she had spent most of her time in
Mindanao since she married in 1956, she would sometimes come to La Union to see her mother but she never
really knew whether at one point or another her mother had demanded the return of the properties from
Roberto.[60] She further asserted that even after Roberto’s arrival from the United States, it was Margarita who
paid off the taxes on the subject properties and that it was only when her health started to deteriorate that Roberto
had taken up those obligations.[61] Hilaria’s testimony ran along the same line. Like Luz, she was admittedly
present at the execution of the Affidavit of Transfer which took place at the house she shared with Jacinto

Page 25 of 28
Costales, the notarizing officer who was her own brother. She told that Roberto at the time had wanted to travel
to the U.S. but did not have properties in the Philippines which he could use to back up his visa application; as
accommodation, Margarita lent him the tax declarations covering the properties but with the understanding that
upon his return he would give them back to Margarita. She professed familiarity with the properties involved
because one of them was actually sitting close to her own property.[62]

While indeed at one point at the stand both of Luzs and Hilarias presence at the execution of the affidavit had
been put to test in subtle interjections by respondents counsel to the effect that their names and signatures did
not appear in the Affidavit of Transfer as witnesses, this, to our mind, is of no moment inasmuch as they had not
been called to testify on the fact of, or on the contents of, the Affidavit of Transfer or its due execution. Rather,
their testimony was offered to prove the circumstances surrounding its execution the circumstances from which
could be derived the unwritten understanding between Roberto and Margarita that by their act, no absolute
transfer of ownership would be effected. Besides, it would be highly unlikely for Margarita to institute the instant
complaint if it were indeed her intention to vest in Roberto, by virtue of the Affidavit of Transfer, absolute
ownership over the covered properties.

It is deducible from the foregoing that the inscription of Roberto’s name in the Affidavit of Transfer as Margaritas
transferee is not for the purpose of transferring ownership to him but only to enable him to hold the property in
trust for Margarita. Indeed, in the face of the credible and straightforward testimony of the two witnesses, Luz
and Hilaria, the probative value of the ownership record forms in the names of respondents, together with the
testimony of their witness from the municipal assessor’s office who authenticated said forms, are utterly minimal
to show Roberto’s ownership. It suffices to say that respondents did not bother to offer evidence that would
directly refute the statements made by Luz and Hilaria in open court on the circumstances underlying the 1968
Affidavit of Transfer.

As a trustee of a resulting trust, therefore, Roberto, like the trustee of an express passive trust, is merely a
depositary of legal title having no duties as to the management, control or disposition of the property except to
make a conveyance when called upon by the cestui que trust.[63] Hence, the sales he entered into with
respondents are a wrongful conversion of the trust property and a breach of the trust. The question is: May
respondents now be compelled to reconvey the subject properties to petitioner? We rule in the affirmative.

Respondents posit that petitioner’s claim may never be enforced against them as they had purchased the
properties from Roberto for value and in good faith. They also claim that, at any rate, petitioners cause of action
has accrued way back in 1968 upon the execution of the Affidavit of Transfer and, hence, with the 28 long years
that since passed, petitioners claim had long become stale not only on account of laches, but also under the
rules on extinctive prescription governing a resulting trust. We do not agree.

First, fundamental is the rule in land registration law that the issue of whether the buyer of realty is in good or
bad faith is relevant only where the subject of the sale is registered land and the purchase was made from the
registered owner whose title to the land is clean, in which case the purchaser who relies on the clean title of the
registered owner is protected if he is a purchaser in good faith and for value.[64] Since the properties in question
are unregistered lands, respondents purchased the same at their own peril. Their claim of having bought the
properties in good faith, i.e., without notice that there is some other person with a right to or interest therein,
would not protect them should it turn out, as it in fact did in this case, that their seller, Roberto, had no right to
sell them.

Second, the invocation of the rules on limitation of actions relative to a resulting trust is not on point because the
resulting trust relation between Margarita and Roberto had been extinguished by the latter’s death. A trust, it is
said, terminates upon the death of the trustee, particularly where the trust is personal to him. [65] Besides,
prescription and laches, in respect of this resulting trust relation, hardly can impair petitioner’s cause of action. On
the one hand, in accordance with Article 1144[66] of the Civil Code, an action for reconveyance to enforce an
implied trust in ones favor prescribes in ten (10) years from the time the right of action accrues, as it is based
upon an obligation created by law.[67] It sets in from the time the trustee performs unequivocal acts of repudiation
amounting to an ouster of the cestui que trust which are made known to the latter.[68] In this case, it was the 1992
sale of the properties to respondents that comprised the act of repudiation which, however, was made known to
Margarita only in 1995 but nevertheless impelled her to institute the action in 1996 still well within the prescriptive
period. Hardly can be considered as act of repudiation Roberto’s open court declaration which he made in the
1979 adoption proceedings involving respondents to the effect that he owned the subject properties,[69] nor even
the fact that he in 1977 had entered into a lease contract on one of the disputed properties which contract had
been subject of a 1996 decision of the Court of Appeals.[70] These do not suffice to constitute unequivocal acts
in repudiation of the trust.

On the other hand, laches, being rooted in equity, is not always to be applied strictly in a way that would obliterate
an otherwise valid claim especially between blood relatives. The existence of a confidential relationship based
upon consanguinity is an important circumstance for consideration; hence, the doctrine is not to be applied
mechanically as between near relatives.[71] Adaza v. Court of Appeals[72] held that the relationship between the
Page 26 of 28
parties therein, who were siblings, was sufficient to explain and excuse what would otherwise have been a long
delay in enforcing the claim and the delay in such situation should not be as strictly construed as where the
parties are complete strangers vis-a-vis each other; thus, reliance by one party upon his blood relationship with
the other and the trust and confidence normally connoted in our culture by that relationship should not be taken
against him. Too, Sotto v. Teves[73] ruled that the doctrine of laches is not strictly applied between near relatives,
and the fact that the parties are connected by ties of blood or marriage tends to excuse an otherwise
unreasonable delay.

Third, there is a fundamental principle in agency that where certain property entrusted to an agent and impressed
by law with a trust in favor of the principal is wrongfully diverted, such trust follows the property in the hands of
a third person and the principal is ordinarily entitled to pursue and recover it so long as the property can be traced
and identified, and no superior equities have intervened. This principle is actually one of trusts, since the wrongful
conversion gives rise to a constructive trust which pursues the property, its product or proceeds, and permits the
beneficiary to recover the property or obtain damages for the wrongful conversion of the property. Aptly called
the trust pursuit rule, it applies when a constructive or resulting trust has once affixed itself to property in a certain
state or form.[74]

Hence, a trust will follow the property through all changes in its state and form as long as such property, its
products or its proceeds, are capable of identification, even into the hands of a transferee other than a bona
fide purchaser for value, or restitution will be enforced at the election of the beneficiary through recourse against
the trustee or the transferee personally. This is grounded on the principle in property law that ownership
continues and can be asserted by the true owner against any withholding of the object to which the ownership
pertains, whether such object of the ownership is found in the hands of an original owner or a transferee, or in a
different form, as long as it can be identified.[75] Accordingly, the person to whom is made a transfer of trust
property constituting a wrongful conversion of the trust property and a breach of the trust, when not protected as
a bona fide purchaser for value, is himself liable and accountable as a constructive trustee. The liability attaches
at the moment of the transfer of trust property and continues until there is full restoration to the beneficiary. Thus,
the transferee is charged with, and can be held to the performance of the trust, equally with the original trustee,
and he can be compelled to execute a reconveyance.[76]

This scenario is characteristic of a constructive trust imposed by Article 1456[77] of the Civil Code, which
impresses upon a person obtaining property through mistake or fraud the status of an implied trustee for the
benefit of the person from whom the property comes. Petitioner, in laying claim against respondents who are
concededly transferees who professed having validly derived their ownership from Roberto, is in effect enforcing
against respondents a constructive trust relation that arose by virtue of the wrongful and fraudulent transfer to
them of the subject properties by Roberto.
Aznar Brother Realty Co. v. Aying,[78] citing Buan Vda. de Esconde v. Court of Appeals,[79] explained this form of
implied trust as follows:

A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in
a typical trust, confidence is reposed in one person who is named a trustee for the benefit of
another who is called the cestui que trust, respecting property which is held by the trustee for the
benefit of the cestui que trust. A constructive trust, unlike an express trust, does not emanate
from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are
linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor
any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends
holding the property for the beneficiary.

xxxx

x x x [C]onstructive trusts are created by the construction of equity in order to satisfy the demands
of justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud,
duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in
equity and good conscience, to hold.[80]

It is settled that an action for reconveyance based on a constructive implied trust prescribes in 10 years likewise
in accordance with Article 1144 of the Civil Code. Yet not like in the case of a resulting implied trust and an
express trust, prescription supervenes in a constructive implied trust even if the trustee does not repudiate the
relationship. In other words, repudiation of said trust is not a condition precedent to the running of the
prescriptive period.[81]

As to when the prescriptive period commences to run, Crisostomo v. Garcia[82] elucidated as follows:

When property is registered in another's name, an implied or constructive trust is created

by law in favor of the true owner. The action for reconveyance of the title to the rightful owner
Page 27 of 28
 prescribes in 10 years from the issuance of the title. An action for reconveyance based on implied
or constructive trust prescribes in ten years from the alleged fraudulent registration or date of
issuance of the certificate of title over the property.

It is now well settled that the prescriptive period to recover property obtained by fraud or
mistake, giving rise to an implied trust under Art. 1456 of the Civil Code, is 10 years pursuant to
Art. 1144. This ten-year prescriptive period begins to run from the date the adverse party
repudiates the implied trust, which repudiation takes place when the adverse party
registers the land.[83]

From the foregoing, it is clear that an action for reconveyance under a constructive implied trust in accordance
with Article 1456 does not prescribe unless and until the land is registered or the instrument affecting the same
is inscribed in accordance with law, inasmuch as it is what binds the land and operates constructive notice to the
world.[84]In the present case, however, the lands involved are concededly unregistered lands; hence, there is no
way by which Margarita, during her lifetime, could be notified of the furtive and fraudulent sales made in 1992 by
Roberto in favor of respondents, except by actual notice from Pedro himself in August 1995. Hence, it is from
that date that prescription began to toll. The filing of the complaint in February 1996 is well within the prescriptive
period. Finally, such delay of only six (6) months in instituting the present action hardly suffices to justify a finding
of inexcusable delay or to create an inference that Margarita has allowed her claim to stale by laches.

WHEREFORE, the Petition is GRANTED. The October 13, 2006 Decision of the Court of Appeals in CA-G.R.
CV No. 72371, affirming the July 2, 2001 judgment of the Regional Trial Court of La Union, Branch 33 in Civil
Case No. 1031-BG, is REVERSED and SET ASIDE, and a new one is entered (a) directing the cancellation of
the tax declarations covering the subject properties in the name of Roberto D. Laigo and his transferees; (b)
nullifying the deeds of sale executed by Roberto D. Laigo in favor of respondents Pedro Roy Laigo and Marilou
Laigo; and (c) directing said respondents to execute reconveyance in favor of petitioner.

IRAC:
Yes, Margarita is correct.

Article 1456 provides that, “If property is acquired through mistake or fraud, the person obtaining it is, by force
of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.”

In this case, the Petitioner, in laying claim against respondents who are concededly transferees who professed
having validly derived their ownership from Roberto, is in effect enforcing against respondents a constructive
trust relation that arose by virtue of the wrongful and fraudulent transfer to them of the subject properties by
Roberto. Anent to the prescription of the constructive trust which prescribes within 10 years, Margarita’s action
was not barred by said limitation.

As the Court ruled in the case of Margarita D. Cabacaungan vs Marilou Laigo, et.al, It is now well settled that the
prescriptive period to recover property obtained by fraud or mistake, giving rise to an implied trust under Art.
1456 of the Civil Code, is 10 years pursuant to Art. 1144. This ten-year prescriptive period begins to run
from the date the adverse party repudiates the implied trust, which repudiation takes place when the
adverse party registers the land.

In this case, however, the lands involved are concededly unregistered lands; hence, there is no way by which
Margarita, during her lifetime, could be notified of the furtive and fraudulent sales made in 1992 by Roberto in
favor of respondents, except by actual notice from Pedro himself in August 1995. Hence, it is from that date that
prescription began to toll. The filing of the complaint in February 1996 is well within the prescriptive
period. Finally, such delay of only six (6) months in instituting the present action hardly suffices to justify a finding
of inexcusable delay or to create an inference that Margarita has allowed her claim to stale by laches.

Page 28 of 28